Why I Hate Condos

Many new investors are enticed into purchasing a condo for their first investment.  The draw generally comes from a feeling that the overall cost is lower when compared to purchasing a single family residence (SFR).  I was lulled into this way of thinking myself early on in my investment career.  In fact, my first purchase was a condo in Ohio, and as I've mentioned in several other posts, this has been a sore in my side for some time now.  Now, I am in no way an expert, but I hope you can learn from my experience.

The general idea about condos is that, because you are paying condo and/or homeowner's association fees; which take care of all items outside the inside of your apartment, you don't have to account for maintenance (at least the majority of the cost) or CAPEX.  In essence, the thought is the fees you are paying will cover you.  Additionally, the overall purchase price of a SFR of similar size will tend to be higher than the condo so it is easier to get in.

However, the drawback to condos is threefold: you don't control the increase in those fees, which tend to outpace inflation; the appreciation rate of condos (i.e., price and rent) does not typically keep up with SFRs, and you don't control the rules associated with living within the community (e.g., the percentage of tenets that are renters, use of amenities, noise, etc.)

I purchased my condo in 2007 for $115k.  At that time, the Home Owner's Association fees were $960/year and the Condo fees were $2256 per year.  Keep in mind that the average rent for a 2 bed/2 bath in the area rented for only about $800.  Those of you who troll BiggerPockets like I do know can see that I had already made a mistake purchasing this property (to be fair, I lived in this property for 18 months, but it still did not make sense from an investor perspective).  

Fast forward 9 years to 2016.  Today, the property is worth ~$100k,  Yes, I bought the property right after the peak in the market (prices had dropped about 10% when I go in), but there has been no appreciation.  In fact, I've lost money: 13% to be more precise.  The Home Owner's Association Fees are now $996 per year, and the Condo Fees are $2448 per year, resulting in a combined 12.7% increase.  Remember, inflation has been essentially flat over the same period.  Meanwhile, maintenance has averaged about $1275 per year, or 13.7% of rental income and rents have only increased about 3% since the time I purchased the property.

Overall, this has been a terrible investment, and the smart investor would sell immediately.  For some reason, I can't let this dog go.  My goal is more about doors, and I intend to make up this mistake in future purchases, while hoping that the overall Ohio market picks up in the coming years.  I know, I know, terrible assumptions.  Nonetheless, it's been a great learning experience for me, and this condo is a constant reminder to stay far away from condos.  I hope you can learn from me and avoid this seemingly innocuous pitfall.

Happy investing!