Real Estate Agent · Guilford, CT · Member since 2014 · 193 posts · 88 votes
I can hear the gasps as I sit here and type. I'm currently wholesaling to raise capitol to invest in buy and hold and I've noticed this weird little niche market here in CT. Wondering if anyone could weigh in on whether I'm missing something. I keep finding these condo complexes where the majority if not all of the units are owned by investors. The HOA's are run by investors and there's a management company in place so there is very little personal management needed (keeping unit rented, collecting rent, evictions etc.). The thing that is so alluring is that they're affordable ($40K a unit) and are above the 2% rule which is almost non-existent in CT. I know there is risk involved in all investing but can people weigh in on what I'm missing here or is this niche a good deal?
Rental Property Investor · Toronto, Canada · Member since 2014 · 37 posts · 8 votes
10y
If you buy just individual units, rather than the whole building, you have to deal with a condo management that might not allow you to rent the units out or might have stupid rules and restrictions regarding renting the units out, as the management of my condo building does. That's one reason I live in my condo unit instead of renting it out.
Rental Property Investor · Algonquin, IL (Chicago suburbs) · Member since 2014 · 155 posts · 76 votes
10y
Kim
Similarly to your findings, I have also found success with this asset type in my marketplace. @kate H is correct that you should indeed confirm rental eligibility prior to purchasing the unit. Some HOA communities have limited the number of units allowed and have applied a rental cap in order to maintain compliancy with FHA lending guidelines, so definitely check this out
Also, confirm the overall financial health of the HOA and even consider serving on the Board of Directors if your time allows. Additionally, you touch on some valid points regarding CapEx and exterior maintenance.....these are covered under most HOAs fees and can help your bottomline as well as ease your management effort.
Investor · Ball Ground, GA · Member since 2014 · 55 posts · 16 votes
10y
Read through the by-laws and know them well.
My wife and I have a condo rental property. It was my wife's condo that she bought before we met. When we got together, she moved in with me since I owned a SFH and had a fenced yard for our dogs. We were in a negative equity position with it and had to make a choice of either renting it "under the table" or we were going to walk away from the property and let it go into foreclosure. She was on a waiting list to be allowed to rent the unit and had been on the list for years but because of an "old boys club" of board members who kept voting themselves back into power they kept allowing select people to have the privilege of renting their units even though they were sitting vacant. The waiting list never changed. We opted to go with choice one (Not advocating to do this by any means just telling you what we did) and rented it to a friend of her sister. Then about 6 months later there was finally a board change (lawsuit of fraud involved against the old board), we got approved by the condo association to rent the unit. We came up with an official lease agreement and submitted that to the association. Our tenant moved out of state for work a few months later and we got a new tenant within 2-3 weeks. Fast forward 3 years later and we still have the same great tenant.
The values have recovered enough at this point where we could sell it, but it's cash-flowing pretty well so we're going to hang on to it.
Here are some of the Cons of renting a condo:
1. You will have to deal with rental % limits.
2. We're basically are only allowed 60 days for tenant turnover. If a tenant vacates and we cannot find a new tenant within 60 days we lose our spot to be able to rent the unit.
2. They could do a special assessment which could eat up all of your cash flow in an instant.
3. Condo association dues can be pretty steep. Obviously you would factor this into your numbers. Our dues are almost as much as the mortgage payment.
Investor · Ball Ground, GA · Member since 2014 · 55 posts · 16 votes
10y
Oh I also forgot another con. This past year the condo associated decided to come up with some BS fee for the non-owner occupied units. We now have to pay a $130 per year "Leasing administration fee" for the privilege of being about to lease the unit. That cuts into the cash flow a little bit.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
You, have less control and they can up fees when they chose. You are still, also responsible for interior maintenance but all in all, I don't mind condos at all.
Similarly to your findings, I have also found success with this asset type in my marketplace. @kate H is correct that you should indeed confirm rental eligibility prior to purchasing the unit. Some HOA communities have limited the number of units allowed and have applied a rental cap in order to maintain compliancy with FHA lending guidelines, so definitely check this out
Also, confirm the overall financial health of the HOA and even consider serving on the Board of Directors if your time allows. Additionally, you touch on some valid points regarding CapEx and exterior maintenance.....these are covered under most HOAs fees and can help your bottomline as well as ease your management effort.
Best of luck!
BK
This is great advice. Condos are some of the most "hands-off" investments you can have, while at the same time affording a healthy and reliable cash flow. I am surprised CT has condos at only $40k/unit. Which area of CT is this in?
Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
10y
Two problems with condo rentals.
1. Condo rules may prohibit or limit or have additional fees in regards to tenants. I have a client who pays $1k every time he rents to a new tenant.
2. Higher vacancy rates and high turnover in most investor buildings. Check out how many other 1 bedrooms are currently sitting vacant in the building you intend to purchase in. I've also found that the rent in that particular building is lower than rent across the street.
Real Estate Agent · Guilford, CT · Member since 2014 · 193 posts · 88 votes
10y
@Andrey Y. The CT complexes I've found are in Branford, New Haven, Fair Haven and West Haven. Some are areas I won't touch, but a few are in decent neighborhoods.
Rental Property Investor · Norwalk, CT · Member since 2013 · 276 posts · 147 votes
10y
Kim Handelman
Can you clarify your post a bit. Are you saying the management company for the association also handles the management of the leasing, meaning they collect rents, take maintenance requests, pay bills, etc. and then pass along the net to the owners? This seems odd to me. In my experience condo associations will have a management company to manage the association maintenance and expenses, but I've never seen them also handle the owners' management as well. My other thought is that the prices are on the lower end because they can't be sold to most owner-occupied buyers that would be using mortgages because of the high ratio of investor owned to owner-occupied units. This could be good for investors, but bad for the other owners in the property.
Investor · Corona, CA · Member since 2014 · 746 posts · 372 votes
10y
I live in a condo in New Haven and the condo fees eat up any cash flow we would have if we rented it out. We plan to hold onto the prop when we buy our house by summertime, but will definitely look to sell once values go up a bit more.