Luxury condos. How dumb are they?

[Tyler D.]

I want to buy a waterfront condo in Chicago. The idea seems very sexy, and maybe profitable, but I'm not sure if it makes the most sense financially  As I see it, the pros and cons are:

Cons: 

Likely won't cash flow in the beginning. 

Doesn't come with land like an SFH.

Id be subject to an HOA that can change policy/ raise fees at any time.

Pros:

Waterfront space is a scarce resource which could lead to better long term appreciation. (I don't need immediate cash flow and care more about total long term returns).

Relatively affordable compared to other large cities (though the same is true for  SFHs). 

Likely easy to manage and low vacancy due to being an A class area.

It's a cool place that I would like to stay/ visit. Being a scarce resource, opportunities like this may not exist in the future, or may get priced out.

Due to the recent fleeing from cities, not might be the right time to buy a condo, instead of houses which have shot up in price.

Your thoughts?

[Kris L.]

@Alan Ouellette

The reason I am wary of condos and don’t hold them as rentals myself is the regulatory risk. Your lease stating tenants are responsible for fines from their actions is definitely a good thing to have, but it’s only mitigating a part of your risk.

For instance, let’s say your condo building has 100 units (made up numbers for easy math), and finds it needs to spend $1,000,000 on replacing the roof, siding, and HVAC. If the association was good, they would have that cash on hand to cover the expense, but a lot of them don’t, so you would get a demand called a special assessment for $10,000 to cover your share. That’s going to be for you to pay, not your tenant.

Condos can also decide to pass a rule to limit the number of non-owner occupancy of the building. If you have a vacant unit but that non owner occupied limit has been met, what is your plan?