Pros and cons in buying a cheap condo

[Stephen Wiater]

Hi all,

I understand that buying a condo can be dangerous sometimes because of HOA fees and etc.

can someone give me some of the pros and cons and things to look out for?

Thank you,

SW

[Account Closed]

I have a relative that has a rental condo and I know a real estate agent that has three.

The reason I have not bought a condo are:

1) There is an FHA rule (changed in the past couple of years) that limits loans based on the amount of condos that are owned by investors. Here's a link to the current guidelines that relaxed the rule a bit last Fall, but generally, no more than 50% of the units can be investor owned. If buyers are limited by the FHA, then values decrease because there is less of a demand. On top of that, you may run into a situation where the majority of the occupants are tenants who may or may not take care of the units as well as a primary owner would. This is why HOA's limit rentals on their properties.

2) Many times there are waiting lists for rentals based on the reason outlined above. Some HOA's reduce that limit to even less than 50% and in many instances, there is a revolving waiting list of people wanting to rent out their units. By revolving, I mean that when a tenant moves out, you end up at the bottom of the waiting list and you're stuck with holding costs until your turn is up again.

3) Watching the market, when there is a downturn, condos are the very first property type to decline in value.  That's not a bad thing if you buy at the downturn, but it's not a desirable position to be in if you buy at the peak.  I have seen condos loose 50-60% of their value in a matter of a few months.  If you're buy and hold, it shouldn't matter, but from a psychological perspective, that can be pretty nerve wracking.

That being said, I am very interested in doing the corporate housing thing using condos (having spent time in corporate housing while working as a consultant myself) and I do have an eye out for the right deal.