Time to Buy Condos?

[Jeff S.]

Headline in Oregonian Sunday paper reads: Is it time to buy a condo?

What is interesting is that after sitting on the market with no activity my girlfriend's son-in-law got 2 offers within 3 days of this article. His place is a downtown view property for low 300's.

The article states how condos are down average 24% over last year to average price of $195,036. I know our housing to be down around 10% for all homes.

She says market is tightening up and retiring boomers will be looking in the future for less maintenance.

She goes on to say check out the financials, the accounting for reserves and the last couple of months of the meetings minutes. Look for large repair projects in the wings that may be underfunded.

Check ratio of renters to owners. Find out if condo built as a condo or apartment.

Location and who built the building are 2 very important items for future resale and for avoiding future construction problems.

She says some dues are over a $1,000 a month. Wonder how that fits into the 50% rule.

Speaking of the 50% rule, I wouldn't count on an association managing things as well as we would so 50% overall might be low if mismanaged.

[Rob C.]

I was about to start a similar thread before I found this one. I have mixed feelings about investing in condos. I know the majority of investors on BP are anti-condos, but I do think there is reason to consider them in today's market:

a) The market has started to turn, and prices have begun to jump. The price increases are more noticeable in SFR's versus condos. As they say, condos are first to fall and last to recover. In other words, there still may be time to get in on condos at near-bottom prices. Here in San Diego county, condos can still be found 50-70% down from peak values.

b) Many folks who discourage condo investing argue that financing is virtually impossible on non-warrantable condos, which makes resale virtually impossible. I don't quite understand this one. Note that conventional financing is available on non-warrantable condos to owner occupants. Note also that many condo investors are willing to buy in cash, so effectively the only part of the market you're alienating upon resale are investors looking to finance.

c) You might be wondering why I didn't mention the other part of the market alienated from buying resale condos: owner occupants looking to use FHA financing. Presently this is the case, but it is appearing like FHA financing on condos is in the process of being reformed to be more lenient on its restrictions: http://www.utsandiego.com/news/2012/may/20/tp-fha-may-ease-regulations-for-mortgages-on/

I think this latter point is the biggest reason for optimism in the condo market. If you can buy a condo with cash in a complex just under 50% owner occupied, there is reason to believe that FHA financing may be an option on it within the coming year, which would surely increase that condo's value.

That said, I certainly acknowledge the downsides of condo investing. As everyone seems to agree, HOAs suck. The potential for HOA fees to outpace rents scares me. Not to mention special assessments. Nevertheless, this risk can at least be mitigated to a degree by careful due diligence on the HOA financials.

All things considered, I think the risk in condos is much greater than SFRs, but the reward may also be greater depending on what FHA decides to do.

Disclosure: I'm a newbie, and I'm hesitant to trust my own judgment, so take my comments with a grain of salt. I gladly welcome responses from the seasoned vets on this forum pointing out any holes in my thought process.