Are Condos a good rental investment for starting as a RE newbie?

Question

I live in the DC, MD, VA area where the housing market is hot right now and home prices are through the roof. Does anyone know if as a new RE investor, I should consider buying a condo from a landlord that may be interesting in selling her unit because she's tired of being a Landlord? I haven't spoken to her yet, this was a tip from someone else. Thank you for your reply.

Victor So · Answer

Hi Rebecca, I don’t mean to be negative here since I’m sure there are many who do well with condo investments. Personally, though, I’ve had one bad experience with a condo that I just sold and that’s all it took for me to make a decision to stay away from condos from now on. Here are some reasons why I don’t like condos: 1) Unpredictability - the HOA can raise fees and slap on special assessments as they see fit. The intentions may be good (in order to make improvements to property, make repairs, etc). However, this can hurt your ROI in the long run and the surprise aspect of it sort of stinks. 2) Renovation limits - the HOA can tell you not to make certain renovations. For example, you may want to tear down a wall in order to open up the kitchen. However, if the HOA says no (like mine did) then you can’t. 3) Regulations on when you can start renting out your property - many condos do NOT allow short-term rentals like airbnb, vrbo, etc or any other endeavors that promotes business use of your home. Also, many do not allow you to rent out your condo. If they do, there may be a wait list or a waiting period. For my condo, I had to wait 2 years before I could even think about renting. 4) Other HOA rules - if you’ve bought a condo before, then you’ll be familiar with the 100 page condo document with all of the rules/regulations of the HOA. I was simply tired of following all of it. For example, my condo would not allow me to hang certain types of curtains and my doors had to be painted a particular type of color. Now, I’m sure there are other condo associations with less stringent rules, more flexibility in renting provisions, etc. but I would suggest you vet thoroughly the HOA you’re dealing with before you buy a condo.

Russell Brazil · Answer

Short term rentals are banned in nearly all condos in the midatlantic.

Russell Brazil · Answer

I own a couple of condos, and have owned a couple others in the past. Ive had good experiences with them. Juat make sure the condo fee is reasonable and the condo associations financial position is ok.

Marie Tai · Answer

I started investing as a newbie in condos and I really like it. Here are some reasons why:1.) low cost - I can't afford a house, but I can afford a small 1 bed, 1 bath condo in a downtown neighborhood in a good city where rent is high. This allowed me to get into the market right away instead of waiting a long time to save up enough down payment for a house. It is also cheaper to renovate a small condo than a whole house.2.) easy to maintain - the strata takes care of the snow shovelling, hallways, entry, gardening, cleaning, etc on the the outside of my unit. I just have to make the inside of my condo clean, nice, and in good working condition. This means that I can get the condo into a rentable condition quickly and self-manage it instead of using a property management company. This gives me experience in managing a property, but with less to worry about, and I can save money on PM fees.3.) neighborhood watch - the strata is always watching what is going on in the building so I will find out quickly if my tenant is up to no good. I like these extra eyeballs on my property because they help protect my investment. 4.) easy to rent out - if you choose a condo in a good neighborhood close to useful amenities/shopping/schools, etc then it is a convenient location that appeals to a lot of people. The more convenient the location and the nicer you make the interior of the unit, the easier it will be to rent out. Also, you can charge more rent. Lots of people enjoy condo living due to the convenience of managing a smaller living space, but being situated in a downtown core.5.) the strata rules can help you - if you don't want smokers, pet owners, short term rentals, hoarders, etc in your rental unit then it might be nice to have these rules in the strata bylaws so that you can refer the tenants to them or blame the reason why on the strata. Usually these rules are put in place for a reason so you can benefit from the wisdom of perhaps issues they faced as a result of pets, smokers, drugs, hoarders, etc.6.) good return on investment - in my market at least, the condo market is appreciating quickly so my condos are growing in value very quickly. They are also easy to sell for when I want to unload my properties later. For instance, two years ago I bought my first condo with 60K down. One year later, it went up in value so I refinanced. The bank loaned me 60K to buy a second property. Now both of them have gone up again so I can potentially pull money out again and buy a third property. I would not have been able to do this with a house because houses in my market are in the millions. Meanwhile, the rent goes up yearly so I can cashflow better each passing year.Since I am not handy with fixing things, I really enjoy the ease of owing a condo where the strata just fixes things for me. I just calculate the cost of strata fees into my numbers when purchasing a property so that I know that the rent will easily cover strata fees and occasional raises in strata fees. I also read the strata documents carefully to look for any big costs (special assessement fees) coming up or issues with the strata management. Eventually, I would like to own houses, but I kind of dread the day I will need to worry about things like gardening, snow shovelling, fixing the roof, etc. I think some down sides to condo investing is that the strata can vote to restrict rentals (at which point you could always just sell and buy another property or buy a new condo where you are the original owner since original owners can rent forever) and you need to know the strata bylaws for each condo unit, which can get tedious or hard to keep track of. Other than that, I think condo investing was probably the best choice for me considering the limited funds and experience I started with.Good luck!

Raul R. · Answer

I started investing w a 3br/2 bA Condo near a U. It’s good way to start out, although it can suck having an HOA for a newbie HOA can be an extra pair of eyes and eliminate some Cap Expenses like roof & maintenance like landscaping while you get your feet wet. Don’t get me wrong I cringed when I got my first assessment and first HOA hike so there’s positives & negatives just keep in mind if the majority of owners in HOA are investors might be hard to get finance and always make sure you are allowed to rent units I’ve read older post of investors buying a condo and not realizing HOA doesn’t allow to rent unit..

Rebecca Ramos · Answer

Hi @Aaron Winters. I would prefer to rent it out on a one year lease to start then do month to month after the end of the first year with annual rent increases as was suggested in several of the BP forums. That's how most of the rentals in large apartment complexes are leased in Maryland. So I thought I would follow that concept for a condo rental. Also, I don't know if it would work as an AirBnB style rental in Maryland. Plus I'd prefer to do that with a SFH and not a condo due to possible issues with the other condo owners/residents. Thank you for your post.

Rebecca Ramos · Answer

Thank you everyone for your posts. I am gleaning so much information on both the pros and cons of Condo investing from you all. It has been recommended that I should ensure that the condo board and unit contract are good ones. How do I find out about the condo board? Also, I thought only the condo buyers at purchase recieve a copy of the rules and regulations. Can I receive a copy before I buy especially in the expensive Maryland area?

Rebecca Ramos · Answer

Thank you for the great condo info you provided @marietai. It helps me see both sides of the condo investment area, thanks I appreicate it.

Rebecca Ramos · Answer

Thank you for the link @Peter Faulkner. I appreciate it.

Peter Faulkner · Answer

Hi Rebecca,This is a good read:https://www.biggerpockets.com/renewsblog/2015/04/29/condo-investing-stop-read-this/Hope that helps!Peter