Buying a Condo as First Investment?

Question

I am starting with around 100k and I am wanting to start in student rentals to lessen the worry of vacancy. My primary issue is that the price tag for off-campus student rentals gets around 200k-400k very quickly. My options for being in student rental territory have been reduced to buying an individual condo, and I am seeking some knowledge to test the viability of this idea.  My questions are:

1: Is the rental process any different than a free standing home? I'm mainly wondering if I can freely rent it out and set prices on my own, or if I have to pass through any red tape with the property managers.

2: Are there any common extra expenses? (other than associated HOA fees)

3: If there is anyone who owns individual condos, is there a difference in the marketing to get tenants in the door? (opposed to free standing homes)

My local market is - Lexington, KY

Thank you for your help in advance!

Eric Martin · Answer

Hi Blake! While I do not own a condo, the first investment property I bought is a student rental in Lexington near UK's campus.

1. The fundamentals of the rental process will be the same. However, if the condo is governed by a homeowners association (HOA) they can set reasonable restrictions. Each HOA is different so I would contact them before buying to ask what types of rental restrictions they have. I found this article which may help you with important questions to ask: https://www.fool.com/millionacres/real-estate-investing/rental-properties/can-hoa-restrict-rentals-spoiler-alert-yes/#:~:text=An%20HOA%20cannot%20impose%20rental,the%20good%20of%20the%20community.

2. The biggest downside is the higher turnover rate. Students typically move after 1-3 years and don't stay as long as traditional tenants. Each time one tenant moves out and another tenant moves in, you will incur expenses for cleaning, general repairs, and leasing fees (if another company manages the property). This is not so much a common expense related to condos but student rentals in general. I use a third-party property management company that charges me 50% of the first month's rent for leasing, screening and placing a new tenant. This cost is worth it to me but is definitely something to budget for in your analysis if you don't plan to self-manage.

3. Some condos include community pools and lawn care maintenance, snow removal, etc. If your HOA offers these amenities then mentioning that in your listing description could definitely attract more applications.

If you want to find better deals, I recommend marketing directly to owners to find off-market opportunities. This method will take more time to find these leads but I can almost guarantee they will be priced lower than what is listed on the MLS. You can find single-family or small multifamily opportunities that won't have an HOA involved. Hope this helps. If you have any other questions, feel free to DM me.

Jonathan Pliszka · Answer

Hi @Blake Reitnauer - Greetings from Gratz Park in Downtown Lexington! The big thing here will be the HOAs as many have significant rental restrictions, etc. For example, financing can be difficult if a certain percentage of a building is tenant occupied versus owner occupied. As a result, many HOAs put a rental cap in place.

Personally, I don't think a condo for a student rental is a good idea (unless you own the entire complex). You're likely going to have a HOA board fining you for tenant behavior (noise complaints, garbage, etc.) fairly regularly.

Blake Reitnauer · Answer

Awesome advice, this was exactly what I was looking for. Thank you!