Are any Investor's buying Condominiums? Don't see much on here about them?

Question

I am curious as to why I do not see much said about Condominiums here. Did a search and not much came up.Any Investor's buying Condominiums in Massachusetts?

Ursula B. · Answer

@Ronald H. Half of my portfolio is condos, and I'm evaluating two more right now. I tend to like condos because they are fairly easy to rent in my market, the cost to rehab is relatively inexpensive and major maintenance expenses are covered by the HOA. There are significant drawbacks however, like the HOA dues which do increase over time (sometimes significantly), surprise special assessments, and not being able to have complete control over how and when those major maintenance items are completed.A very recent experience has me re-evaluating my strategy, however. Got a call from the tenant that the water was off. Seems the HOA didn't pay the bill and the city shut off the entire complex. It's not an individually billed account, so there was absolutely nothing I could do other than try to offer the tenant other accommodations (hotel stay on my dime, of course) and contact the HOA. Thankfully the tenant elected to stay at a relative's place and the water service was restored the next day, but it was certainly an eye-opening experience that has me rethinking my target price point for condos.

Jade S. · Answer

Ease of maintenance is why I like townhouses that are fee simple with minimal HOAs. The two I own have rented out quickly, but the HOAs are reasonable and I can obtain financing like a detached SFH. They might not quite have the appreciation of many SFHs, but many of the other aspects more than make up for that. Maybe a good "middle ground" option vs a condo.

Travis Beehler · Answer

Nice! Good to hear! Has the HOA been good for you? That's my biggest fear. I had a bad experience with one when I bought my first condo as an owner occupant. :) But the relatively cheap prices and more modern look (generally speaking) makes me want to buy some.

Dawn Anastasi · Answer

So far so good! The tenant pays every month, I never have had to hassle her for rent, never had her be late, sometimes she pays in advance. I have had zero repairs in that year. I wish all my rentals were like that!

Travis Beehler · Answer

Hi Dawn!I've been keeping an eye on condos over the years, and since it's been about a year since this post of yours, I was wondering what your experiences were with that condo? Things still going well?

Aly W. · Answer

Most of our portfolio is composed of condos and we are mostly happy with them. Part of the maintenance fee includes insurance for the building/roof itself, as well as the water/sewer/garbage/landscaping. We have had small increases in the fees over the years, but the rents have gone up as well. The most annoying part can be the condo approval process for tenants. In Broward County, FL, it's the norm, and depending on the Board, can be a speedy or tedious process. But generally we prefer them for the lack of exterior issues that the tenants in our SFRs call about - roof leaks, landscaping, and much lower insurance costs. The amenities of the complexes attract a higher paying class of tenant too.There are things beyond our control in the city of our SFR rentals - rising taxes, fewer city services, crime. Due your diligence with the condo budget documents, find out if they're in litigation, are there going to be any major assessments or maintenance fee increases, what projects are in the pipeline, how many owners vs. renters, etc.

Jeff Bridges · Answer

They are not considered avoidable by investors but they certainly require some specialized due diligence above and beyond what you'd do for a SFR. Condo fees often wipe out cashflow on many units in non-metro areas due to lower rents with thin margins, therefore condos tend to be more doable for investors in metro areas where rents more likely to be able to cover condo fee, debt service, other expenses. You also would best be suited to chat with a current condo investor (I am one) to learn how to investigate the condo association and its financial stability along with the condition of the property. This is not always easy to get all the information you need or know what information to ask for from the property managers, board members, etc. The most information you will get is usually after you have a signed contract and request the condo docs containing the latest information from the association, however I recommend getting property manager information and calling in advance of a contract to ask key questions about financial stability, budget, upcoming capital expenditures in addition to closely scrutinizing your projected cashflow to ensure that you can still cashflow 5-10 years out with an acceptable to you cashflow with a modest rise of the condo fees. i.e. so if condo fees are 160, what would your cashflow look like if they were 200? You have to be prepared for increases as well as the risks of costs outside of your control. Finally, you need to make sure you can be in a position to sell years down the line as an exit strategy so you have to buy at a discount if possible.

Shaun Reilly · Answer

I own a bunch of condos in MA.Pretty much the only thing that has a chance of cash flowing in the eastern half of the state if you can't afford to get into a small multi family.Rents are similar (And often more) than a single with the same BR count since there are more included amenities. However as you saw you found something you thought was 40% of what you though was market value for a house.Associations can be tough and fees can go up and there can be special assessments. The assessments don't bother me (within reason) as much as most people since that is basically the same as having a reserve budget for CapEx expenses. You might get hit with an assessment for something but you won't ever have to drop $5-10K to do a roof.

Darrell Shepherd · Answer

I rehab instead of buy and hold and have done a few. Got hit with a $7k assessment on one I owned less than a year. For a roof replacement I could have done for a fraction of that. As has been said, lots of things outside of your control, but I wouldn't be scared of them as long as that was factored into your budgeting. Biggest fear would be the neighbors, if too many people don't pay their dues the HOA can't perform it's duties and that can be pretty ugly for the complex and values.

Dawn Anastasi · Answer

I have always been condo-adverse however this year I decided to try an experiment and buy a condo (with a partner). The unit was only $16,000 and rents for $725. If I subtract the condo fee then it's like getting $525/month in rent. (It's a little more than that but I'm rounding up.) Because I was able to get the unit so low-priced I thought it was a good experiment and see if I will change my mind about condos.