Pros and cons of 7 condo units in a 50 unit multifamily property

[Jason Layman]

Have a seller with 7 condos in a multiplex with other condo owners.  Looking at it as a possible deal for myself or to wholesale.  Interested in hearing opinions since most opinions I get are no to the condo.

[Russell Brazil]

Thanks for the tag @Ned Carey.  @Jason Layman I like condos, but one thing you need to make sure of is that condos work in the market you are looking at.  In my area, condos work in certain locations, DC, Montgomery County, Frederick County, a little bit in PG County.  I find they work a lot less where Ned is doing his investing up in Baltimore. So even though him and I are literally investing 30-60 minutes apart, we are investing in areas where the demand for condos, how they are run, the financial health of the condos in general varies greatly.

If condos are a viable investment in your market, you want to look at some things. Investor ratio is really important.  Onces the investor ratio becomes too high in a condo complex Fannie Mae will not lend on the complex, and when that happens, prices plummet. So check Fannies Guidelines and the investor ratio.  If the ratio is already too high, the lower sales price might already be priced in. Ive had a nonwarrantable condo in the past, and while they are higher risk, they can throw off good cash flow because of the lower sales price.  They are harder to sell though due to the limited amount of buyers for them.

You have to look at the financial health of the association.  Do they have an amount of reserve funds that makes logical sense for the size of the building. You need to look at their history of special assessments. 

Id be a little hesitant honestly with owning 7 units int he same building. Im a big believer in diversification as way to mitigate risk.  Sure you have a certain plus with the condos being all grouped together.  But each of those 7 units is going to be subject to the same risk. So if you get a special assessment, your multiplying that risk times 7.  If they become nonwarrantable, you multiple that risk by 7.

Condos do have certain pluses. Easier management, less repairs, less capex. I almost never hear from my condo tenants, because little goes wrong with them.  

Condos can be more sensitive to changes in economic conditions than other asset types.  They are easier to go soft on price when the market cools...conversely, they are quicker to rise in value when the market is hot.  Volatility is a factor of their risk. They are inherently higher risk than a single family.

I also live in a condo, and Ill personally likely never go back to living in a single family as I much prefer condo living. (Although my condo is actually a descent amount larger than the single family I lived in before here)