Purchasing Condos

[Victor Webster]

My background is in commercial real estate. The only residential property I own is my house. I am a bit apprehensive about diving into residential so I want to start off small. Is there a rule of thumb that you use when investing in condominium units (not entire complexes). There is one I am looking at now in South Carolina that is a foreclosure. I think I can get it at $40,000. HOA is $200/month. Rent varies in this complex, anywhere from $800-$1,200/month.

Thanks in advance!!

[Russ Scheider]

@Victor Webster  I steer clear of condos for several reasons. 

1. It is likely that the HOA is involved in lawsuits. If there is no litigation in process, there is a good chance of litigation in the future. People love to sue HOA's. These suits can be a minor annoyance or a major financial issue for the property owners. The first thing I do when considering a condo deal it ask about present or pending litigation.

2. Unless the majority of your complex is Investor-owned, the HOA is run by homeowners/residents who look at the overall property very differently from the way cashflow investors look at the property. If the HOA votes for a complete makeover of the common areas and raised the fees to $600 a month for 5 years to pay for it, you only get 1 vote. You are at mercy of the HOA, unless you can find a way to control/influence the HOA. It pays to take a look at the meeting minutes from the last few HOA board meetings to determine whether fee increases are being considered.

3. Unless the condo is beachfront or in some other highly-desirable location, appreciation often lags behind SFR's in the same area.

You may have experienced these same issues in your commercial RE business, but I find that homeowners are often far more emotional and irrational than business owners, making HOA's very unpredictable.