Condo for Rental

[Simon Shih]

Newbie investor

My investment plan is to buy cheap condos with cash in decent areas on town and rent them out.  I hope to buy one every 3 months.

1b 1b
560 sq ft
$35,000 (will buy cash, probably offer 32,000)
move in ready
$200 month HOA
rental $650-725 a month.

Opinions? Am I missing anything?

Thanks in advance.

[Jim Fus]

Here's a couple of suggestions based on personal experience.

1. You mention planning to buy in decent neighborhoods.  It's critical to spend some time on the ground in the complex itself.  Talk to people who live there.  Are they owners or renters?  How long have they been there? Do they like it? How responsive is the management company?  Is the litter being picked up?  Lawns maintained?  Anything that might point to a transient population and/or bad management or financial distress.

2. Go to the county site and see what percent of recent buyers are investors as opposed to residents.  Then take a look street by street.  Being investor heavy isn't always a bad thing but I think owner occupant is more stable.

3. This one is critical. Get a hold of the most recent HOA financials either from the seller or HOA itself. I bought a unit from a realtor/investor who sat on the HOA board. He failed to disclose that due to the high level of delinquencies the complex was on the verge of going belly-up (this was 2008). I'm not even sure if the ink was dry before I received my first special assessment.

4. Find out what screening process, if any, the HOA has in place and if it is adhered to. My complex has a process which seems to be universally ignored. But since screening involves both time and money you don't want to get stuck paying fees which duplicate your screening and/or an HOA which drags its feet approving your tenants.

So far I have just the one condo.  There's a reason most investors stay away from them.  I'm not saying no.  Just be real careful and do your homework.