Need to buy next investment property! Any thoughts on Condos?!?

Question

Currently in the market for my next investment property. My biggest objection is my market (Denver) is so expensive it’s hard to make the deal work. Only properties I can make numbers work are Condos....Goal would be to turn it into short-term rental/Airbnb. Any thoughts about condos, HOA, would love to hear from anyone who may have condos as part of their portfolios

Jaquetta T Ragland · Answer

@Shedrick Boyd I would suggest checking with HOA before buying because some may not allow Airbnb’s...the other tenants may not like it.

Emily Martorano · Answer

@Shedrick Boyd Our first rental is a SFH. Would love to get into multi-family, but don’t have the resources at this point. Also considering AirBnB, but we are not interested in moving, so have to study options carefully. Also looking outside Denver, but still in CO.

Bridget Brazelton · Answer

Hey @Shedrick Boyd, @Emily Martorano is correct about short term rentals in the City of Denver needing to be your primary residence. However, a lot of people find success in medium term condo rentals (ex: traveling nurses on a 3 month contract). These leases typically bring in higher rent than long-term leases but are longer than 30 days so they aren't governed by short-term rental restrictions.I think that condos are becoming more interesting in Denver. The pandemic encouraged an outflux of people from downtown to less populated areas and a lot of condos have been sitting longer than before or even dropping in price. Things that I would encourage you to look at when investing in a condo include:1) Know the HOA's policy on renting units: A lot of buildings have caps on how many of the units can be rentals at one time, and require a certain percentage to be owner occupied. If the rental list is full, they have waiting lists to be able to rent out your unit. Your agent should get this information for you, but if not, make sure to ask about any and all rental restrictions. It'd be a real bummer to buy a condo and then find out you can't lease it out!2) Investigate the HOA's financial health: Low HOA dues can make your numbers look great when you're analyzing a deal, but if the HOA dues are suspiciously low, it could indicate that the building isn't collecting enough money to properly maintain the building. This shows up in either deferred maintenance or special assessments down the road. You should be able to get information on current cash reserves, etc., to make sure they're planning for the future. Those pointers seem negative, but I don't mean them to be. Just do your due diligence! Many HOA's are very well run. Condos have great upsides, too. There's so much less maintenance that you need to be planning for and responsible for since you only own what's inside the walls of your unit. You don't have to worry about landscaping on a property, etc.. Some people build big portfolios of condos and swear by them for these reasons.

Bridget Brazelton · Answer

@Shedrick Boyd, yes, HOA dues can be all over the board. I think sometimes it depends on amenities. Buildings with things like pools, gyms, or front desks tend to have higher fees to cover those costs. Other times, buildings will set their HOA dues too low for a number of years and their cash reserves begin to deplete. When they realize they're in trouble, they pump up the HOA dues pretty high in order to scrounge up the cash to fix and maintain things. That may be the case with the example you gave above.So, Airbnb in Denver is a delicate dance. It must be your primary residence in order to get your short term rental license, but people make that work in a number of ways. I have a friend who posts his house on Airbnb and stays at a friend's house when his place is rented. Other people might have a 2 bedroom condo and list 1 bedroom on Airbnb (This strategy isn't for everyone, but I know people who have done it and made lifelong friends with some of their guests). Another strategy is to buy a place with a basement apartment and Airbnb one half and live in the other. Or if you can swing a place with an ADU you can live in the ADU and Airbnb the house, or vice versa. Most of the Denver metro area has these primary residence restrictions (exceptions being Arvada and Littleton, but there are still rules to be aware of there as well).

Emily Martorano · Answer

@Shedrick Boyd I believe you cannot currently AirBnB in Denver unless the property is your primary residence. I feel your pain on the market—looking for our next place also.

Kenton LeVay · Answer

The previous posts regarding HOA's certainly are valid and I echo them with just adding some caution around your strategy:1. You cannot control HOA expenses, they are likely to increase over time. Not saying condos never work as rentals, just something to consider. On the bright side, you get advantages with an HOA: protecting value of property, exterior maintenance, etc.2. It makes me VERY nervous to depend on the incrementally increased income by a short-term rental strategy as the sole reason I cash flow. It may work out in the short term but you could be screwed if the HOA or local laws change such that you're no longer allowed to do short-term rentals in that area. I'm not against short-term rentals as I think they're a great way to maximize cash flow if available, but I'd only do a short-term rental where a long-term rental would still cover my expenses. If you can't find a property to cash flow in your market as a long-term rental, it may be a good idea to invest long distance or find ways to decrease your monthly payment (higher down payment, lower interest rate, etc.)

James Carlson · Answer

@Shedrick Boyd Ah, the Denver Dilemma! Prices are so freakin' high! I know it's sacrilegious on Bigger Pockets, but I think condos can be a great investment. My wife and I own two condos in Denver and operate both as medium-term rentals. Especially right now when people are fleeing the packed condos for SFH during covid times, so there are relative deals to be had in condos. Now, you're not getting anything for a crazy deal, but there's less competition and the prices are -- relative to SFH -- a pretty good price right now. And I don't buy this idea that everyone's leaving the city and will never return. Have you ever been young? Do you know what you do when you're young? You drink and you date. And sorry, you're not doing that at the Wing Stop in a Lakewood strip mall. You're doing that in downtown Denver. (Don't hate me city of Lakewood!) Now that I've stepped off my downtown Denver soap box, I will also say that there are some good deals to be had in condos in southeaster Aurora and near I-25 and I-225. If you can find a 2-3br condo for $240k or less, I'd be interested. And about HOAs and Airbnb in Denver ... I've been following STR laws for years and helping Airbnb investors for that time, and I have come across exactly four condo buildings that allow for Airbnb. Most are downtown and therefore about as expensive as buying a home. (If you want more info on Airbnb laws, check out this event.) Good luck!

Fred Cannon · Answer

@Shedrick Boyd Shedrick I am an investor in Condo's as well as SFH. I love my condo rentals because they are easily maintained and bring a good ROI. I also rent short term but within the guidelines of the HOA. I market my short term to professional travelers, mainly in the medical field. There is a growing number of nurses, therapist, etc, that are filling positions all around the country, fulfilling a desire to travel, and making a lot of money at the same time. I usually lease for 90 or more days, I have never had an issue with rent collection, or with vacancy since I began to converting to this model. I only buy one bedroom condo's in exceptionally nice areas. When I buy I completely remodel, mainly tile flooring, upgrade bath and kitchen countertops and appliances. Must have for travelers is washer/dryer in unit. I would encourage you to start with a one bedroom in a good location. Find a website to advertise that caters to professional travelers, I don't do VRBO or AB&B because I want longer than a few days and I don't want to clean all the time. My places are not for vacationers. I expect Denver would be a great area to use this model.

Bridget Brazelton · Answer

@Shedrick Boyd, I'll shoot you a message. So much of what the right move is depends on your goals. But, if we work backwards from where you want to go and what you might be able to qualify for to start with, I'm happy to help you strategize.

Shedrick Boyd · Answer

@Fred CannonGreat to know, I’m curious how are you marketing towards these individuals? What kind of lease are you putting together as well?