Possible condo investment... What should I ask?

Question

Kevin Cenna · Answer

Having previously owned a high-rise condo unit, here are some things I wish I would have asked before buying:
1. what are the HOA rules? The seller should provide a copy so you can see what the restrictions are before you buy.

2. What are the monthly maintenance fees for each unit?

3. Are there currently any major projects in the building that you will be responsible for?

4. Are there any major project coming in the next 3-5 years that you need to be aware of?  If there is a major project, you may be responsible for a large outlay to help fund the project.  You should be able to request the past X months of HOA meeting minutes to see if they've discussed any of these major projects.

5. Are the pipes and electrical up to code?  A family member bought a condo and the pipes needed to be replaced because the plastic originally used was prone to breaking.  The condo building got a payout to help fund the re-piping, but the prior owner just pocketed the cash.  So check to see what you need to be aware of for items in the walls.

6. Are there restrictions on replacing the windows or balcony railings, etc.?  A friend wasn't allowed to replace the original crummy  windows in their condo b/c the HOA had to approve them and simply wouldn't.

7. What is the owner-occupancy rate in the building?  My condo was 40% investors, so only 1 local bank would lend to me.  Made re-selling impossible.  (Note - make sure you know your exit strategy.)  Bank should also be able to tell you this info.

8. Is the condo in a high-rise?  What floor is it on?  Are the units near the elevator or garbage shute - things that another owner (or renter) would find bothersome.  If it's too close to the ground the traffic may be bothersome or it could be really convenient.

9. If it's in a high-rise with a garage, do the units come deeded with a parking spot?  My building had a garage & 10% didn't have parking spots.

10. If it's near water, are there problems with flooding, soil erosion, insects, etc.?

11. Does the building have on-site management?  If so, how long has the current manager been there?  If they are constantly churning management, it's (possibly) an indication the HOA is pretty tough to deal with.

There may be other things to consider that I'm not thinking of, but those are just off the top of my head from ~10 years of condo experience.Good luck!

Kevin

Kirby Johnson · Answer

What was the worth of those condos if you can remember? I recently got a call from an individual about a couple of condos he owns, but i looked them up on zillow & the estimation was 49k & they were also in a very undesirable area. Could they be worth pursuing?

Benjamin Blackburn · Answer

Just a little update.  I ended up not trying to purchase it for myself.  I'm currently in the process of wholesaling it to an investor.  Both contracts(P&S and Assignment) are with the title company and we should be good to go in about 7 days if it's clear.  This would be my first official deal so I'm super excited about it.  I did get a scare today when the seller was demanding that earnest money be put up.  I quickly called the buyer and they will be going to the title company tomorrow to get that in place.  I still don't understand how the earnest money deposit works.  Do I negotiate with the seller initially the amount of deposit that will be needed to be put up by the buyer?  Because there is a slot for earnest money amount on my P&S agreement.  Or is that just something I talk to the buyer about?

Benjamin Blackburn · Answer

Thank you all very so much for the very helpful info.  I will be viewing the property this Friday.  I will then find out all the critical information needed to make a sound decision.

Curt Smith · Answer

Many condo HOA's do not allow rentals.

Monthly dues typically kill any prospect of a decent cap rate.  Personally I won;t do a rental deal unless it caps at 15% better.  My standards are high because of being in GA and having tuned a very profitable model.  So you should set your standards for profit high too!!!!  Typically condos don't make the cut cap rate or cash on cash wise.

Unless the HOA allows rentals then poof:  create student housing at an above market rent.  :)

Look up student housing in condos.  It's a great model.  There's property managers around universities that specialize in managing student rentals.

Paul Kelly · Answer

No matter what you decide to do, flip or wholesale or keep the most important thing is that you found a motivated seller. You best know your Sale and rental numbers before going in, that way you can have the confidence in making an offer. In condos, sometimes even floors or locations can affect sale / rental prices. However, you found a motivated seller! Good job with that and be of the mentality that you are there to HELP the homeowner. If you are thinking about the money you will make instead, those subtle vibes leak out and even though the homeowner may not verbalize it, it could sour them.

Charles Moore · Answer

Are those the usual purchase prices for condos in your area? I know they're cheaper than SFHs, but jeez! But even so, what are the HOA dues, and how stringent is the HOA? I'm in agreement with many investors that HOAs are very irritating to work with, especially when they can levy assessments on the whole complex YOU have to help pay for. Also, if any maintenance issues come up from your unit that may affect other units (problems with shared plumbing, noise, etc.) the HOA sticks it's nose into the matter. How many renters compared to owner occupants are allowed? Condos also don't appreciate as quickly as SFHs.

Maybe wholesale or flip these units to be done with them?

Possible condo investment... What should I ask?

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