All Forum Posts by: Rob C.

Financing can be found on non-warrantable condos, but it's not very appealing. At least not right now. Bank of Internet and some credit unions will do these as portfolio loans, but they'll require at least 30-50% down and the interest rates will be above 6%. Has anyone else found anything better than this?

Most folks here bag on condos. I'm torn on them, particularly the non-warrantable condos. There is some pretty big upside potential on them given that FHA appears to be in the process of changing its rules to be more accommodating of them: http://articles.latimes.com/2012/may/20/business/la-fi-harney-20120520.

On the flipside, I wonder if we will see many condos end up being just as much a disaster of an investment as timeshares. If a complex is poorly managed and HOA fees continue to soar, the condo owners may end up looking for people just to take them off their hands (as is often the case with timeshare owners who want to walk away from the maintenance fees). Granted, much of the reason HOA fees have soared over the past couple years is because of all the vacancies / delinquencies from foreclosed / distressed owners. I would guess that HOA fees will go back down a little bit for a little while once all the shadow inventory eventually clears out, and the complexes fill back up with owners who are paying their dues. But again if the HOA management is incompetent (as many seem to be), then HOA fees may never go any direction but up. And the question then becomes: can they outpace inflation? outpace rents? The latter case would be disastrous. Anyone else have any thoughts on this? I'm just getting into this industry myself so I don't want to give any impression that I've got the answers; rather, I just throw out thoughts and questions to stimulate discussion from the seasoned pros on here, who do know what they're talking about

I was about to start a similar thread before I found this one. I have mixed feelings about investing in condos. I know the majority of investors on BP are anti-condos, but I do think there is reason to consider them in today's market:

a) The market has started to turn, and prices have begun to jump. The price increases are more noticeable in SFR's versus condos. As they say, condos are first to fall and last to recover. In other words, there still may be time to get in on condos at near-bottom prices. Here in San Diego county, condos can still be found 50-70% down from peak values.

b) Many folks who discourage condo investing argue that financing is virtually impossible on non-warrantable condos, which makes resale virtually impossible. I don't quite understand this one. Note that conventional financing is available on non-warrantable condos to owner occupants. Note also that many condo investors are willing to buy in cash, so effectively the only part of the market you're alienating upon resale are investors looking to finance.

c) You might be wondering why I didn't mention the other part of the market alienated from buying resale condos: owner occupants looking to use FHA financing. Presently this is the case, but it is appearing like FHA financing on condos is in the process of being reformed to be more lenient on its restrictions: http://www.utsandiego.com/news/2012/may/20/tp-fha-may-ease-regulations-for-mortgages-on/

I think this latter point is the biggest reason for optimism in the condo market. If you can buy a condo with cash in a complex just under 50% owner occupied, there is reason to believe that FHA financing may be an option on it within the coming year, which would surely increase that condo's value.

That said, I certainly acknowledge the downsides of condo investing. As everyone seems to agree, HOAs suck. The potential for HOA fees to outpace rents scares me. Not to mention special assessments. Nevertheless, this risk can at least be mitigated to a degree by careful due diligence on the HOA financials.

All things considered, I think the risk in condos is much greater than SFRs, but the reward may also be greater depending on what FHA decides to do.

Disclosure: I'm a newbie, and I'm hesitant to trust my own judgment, so take my comments with a grain of salt. I gladly welcome responses from the seasoned vets on this forum pointing out any holes in my thought process.

Garrett,

You asked for cities within San Diego with the most potential. Perhaps it's worth clarifying what you mean by most potential. Are you looking for "up and coming" neighborhoods" with more potential for appreciation by way of redevelopment / continued development? I wouldn't count on this much now that California has wiped out its redevelopment agencies as. That said, I've heard it's reasonable to expect continued revitalization in North Park, South Park, and downtown East Village.

If by potential, you mean cash flow potential then that's another story. The rule I've heard is to go after the Mesas (La Mesa, Kearny Mesa) and stay away from the heights (e.g. City Heights, Logan Heights). The cash flow numbers look really good in places like Logan Heights and southeast San Diego, but it seems like they will come with a fair share of headaches, as the neighborhoods down there are a little bit more rundown and have a little bit more gang activity. I live up in north county and am primarily focused on San Marcos, Vista, Oceanside, Escondido. They have shot up a little bit in price the past year or so, but there still appears to be pretty good cash flow potential there, particularly with interest rates so low.

Tim pointed you to the investment club areas around San Diego, and those are pretty useful. I've found the discussion forum on SDCIA's website to be particularly valuable. And as Tim offered, feel free to touch base if you plan to attend any of those. I too am getting started in my real estate investment endeavors, and it's always good to connect with others in the same position to compare approaches.

Rob