Investing in Condos - Good strategy for a beginner?

Question

Can anyone speak to whether or not buying a condo as a rental property would be a good investment for a beginner? I don't have a lot of cash, so I am attracted to the price range of condos vs other housing.

Besides HOA, what are considerations that are unique to condos? Where can I learn more? Anyone care to share their experience? Where can I learn more

Thanks

Austin

Theresa Harris · Answer

@Austin Bright Condos can work if single family homes are out of your price range. HOA fees can add up and you might be better off adding that to you mortgage payment and getting a starter home.As others mentioned, read the condo docs. The financials are important as some condos are well run and others aren't. Those that aren't can cost you a lot in special assessments. Also remember condo boards can change the rules and not permit or limit rentals. They also levy fines if tenants break the rules, so make sure tenants read the condo rules and sign off saying they will abide by them and pay any fines.Yes purchase prices are lower, you don't pay directly for outside maintenance and property taxes can be lower.

Ryan Swan · Answer

Of all property types, condos tend to get closest to the 1% rule. They're easier to own in that the HOA usually covers things like landscaping, exterior maintenance, roof, common areas, community pool, sometimes water/sewer/trash, and sometimes a blanket insurance policy. The downside is that you're trading ease of ownership for lack of control, meaning your low fixed monthly dues could increase, or you could get hit with a special assessment for major capital improvements to the community. If I were starting out, I would seriously look at condos as a way to get my foot in the door.

Jordan Moorhead · Answer

@Austin Bright I wouldn't do it unless I could Audit the HOA. Lots of HOA's are not great at managing cash. If it was professionally managed I'd be open to it.

Doug McVinua · Answer

@Austin Bright Condo's can be great investments! I manage a number of them in the Phoenix, Mesa, Chandler, AZ market that do well. Some topics to look out for, the percentage of ownership by any one party. You don't want to invest if one party owns a large percentage of the complex. Financing is sometimes difficult, nearly impossible if the percentage of rentals and or 1 owner is high. Sometimes the HOA's are restrictive on the use, like no short term rentals or rentals or no pets, etc. High HOA fees are another one to watch and it can really skew the numbers for you.

Paul Welden · Answer

Yes, buying condos as investments can work out. I own an investment condo in the Phoenix area and it's working well for me so far. Need to be concerned about HOA special assessments. The last one for me was only $300 ... not bad at all. Condos = no yard maintenance; no pool maintenance; no building/roof maintenance, but you pay HOA monthly dues for themProperty taxes and insurance on condos are usually very affordable too. But buying a condo has to make sense. Does the community have more renters than owner occupants? What is the financial situation with the HOA? Is HOA managed by property owners or management company? Selling it down the road could be a challenge if the community is non-warrantable. May get higher interest rate on mortgage just b/c it's a condo but with rates being super low now, it could make a lot of sense to buy a condo to get started. I'm very happy with my purchase of a condo for my 1st investment property. Let me know if you have any other questions, comments, or concerns.

David M. · Answer

@Austin BrightIt works for me. When you are starting out, nice not to have to deal with exterior issues. Also, condos are all newer with public utilities. Most single families in my area are well and septic. Cuts back on the costly risks/ issues of well and septicIf the numbers work and the associations are run well, condos can be a good investment. Yes, you have to be careful of special assessments etc. it in a well run association, they are limited to bad weather (ie snow removal). See if you can checkout the financials. If the have low reserves or capital reserve budget, they will have to issue a special assessment to cover capital improvements. Basically, the capital reserve budget is for a “down payment” to get a loan to pay for the improvements, and the special assessment is to service the loan, say five’ish years hopefully. Special assessments are not supposed to be tax deductible

Chris Risi · Answer

Hi Austin, it probably all depends on what market you are looking in. When I consider condos in California and Arizona (where I do all my investing) Condos almost never seem to make sense with the higher prices and HOAs.But again, cheaper markets might be different. Where are you looking to invest?