Life of condos

[Prabodh Kumar kandala]

Dear Amazing Bigger Pocket colleagues,

Wondering what is the life of condo's. Structurally how good they are?

I did learn that condo's appreciate less, but do they resell after 40 or 50 years from their time of construction. If there are any other suggestions about buying and selling condos, please advise.

Regards,

Prabodh

[Mark W.]

@Prabodh Kumar kandala, I have had a lot of success with condos in Colorado.

What I love about condos is the post-tax return can be higher than standalone houses.  That's because condos typically don't have much land associated with them.  So, you can depreciate a larger portion of your acquisition cost.  Nonetheless, you should verify this with your own tax professional.

Certainly, the structural quality will vary be area, vintage and who built it. However, assuming they are built well, there isn't a whole lot that can go wrong with them. They are small, and the exterior and common area amenities are maintained by the HOA. With that said, do your due diligence on the HOA. Pay extra attention to their insurance policy, annual budget and financial reserves, whether they have any pending litigation, as well as what percentage of the residents are renters vs. owner-occupants.

I highly recommend having Loss Assessment coverage on your insurance policy, which is a low cost addition to your policy. Here's an example why...if the HOA submits a claim to their insurance company for hail damage to the roof, and they have a very large deductible, and they do not have the financial reserves to cover it, they will need to do a special assessment on the homeowners. If you carry Loss Assessment, you will be able to file a claim to your insurance for that. Again, you should verify this with your own insurance agent.

Any pending litigation, as well as the percentage of renters, could affect your ability to get a loan for the condo.  If your lender originates loan and sells them on the secondary market (this is what most lenders do), they will be subject to the standard Fannie Mae underwriting requirements.  Condos will pending litigation and greater than 50% renters are considered "non-warrantable" condos, and they will not lend on them.  However, a portfolio lender (a bank that keeps rental property loans on their own balance sheet and does not sell them on the secondary market) can be more flexible.  So, seek out a portfolio lender, which should make your life easier.

I hope this helps.  Good luck!

Best Regards,

Mark