Pro's and Con's on investing in Condo's for rental portfolio

[William Garcia]

I'm still hot on the trail for our first SFH rental prop but I've had people ask if I'm also interested in condo's too. My first instinct is no, not yet - with no properties and land-lording experience under my belt yet, i'm not ready to hassle with Home Association's, fees, all that stuff, but I realize I should pick the brains and experiences of the BP community so if you have experience as a multiple condo's you rent out, please chime in and share your experience and if you recommend.

[Patricia Steiner]

Several of my clients own condos as rental units. They are primarily in areas where private colleges are located and the tenants are those students who are funded by the Bank of Mom and Dad.  The real issues come down to:

The HOA fee.  It is what it is and you have no control over future increases.  It can make your investment have returns that are more like an annuity than the higher potential of a rental.

Special Assessments. There's nothing special about these. The HOA can vote to charge every owner an assessment should a budget shortfall or unexpected expenditure (never cheap - roof, plumbing, etc). Hard to plan when something "special" falls upon you.

Limited Use.  Some condos do not allow the units to be rented until after being owned for a period of time.  Most prohibit any lease term under one year.  

Tenant Screening. In most cases, the HOA is responsible for screening the tenant and the information obtained is not provided to the owner due to privacy laws. The HOA makes a decision as to "acceptability of the tenant."

HOA Complaints About Tenant. If the HOA receives a complaint about one of your tenants, you could be forced to terminate the lease with the tenant and remove him/her from the premises. If an owner occupant complains, it carries a lot of weight and that weight does not come down in your favor.

Overall, I don't recommend my clients choose condos over SFHs due to the ROI. You can shop insurance quotes with a SFH and control your expenses - but you don't get that opportunity with an HOA governed condo. They can be cheaper to acquire but that savings can quickly evaporate.

Hope this helps...