@Josh Thames
Good afternoon Josh,
The reason condominiums have potential cash flow which might favor investors is because the condominium no longer meets FHA/FNMA/FHLMC guidelines. This is generally due to one of two reasons. Either the investor ratio is too high, or the delinquency rate is too high. In either situation, you generally experience a deteriorating situation at the condominium association. In the case of too many investors, condo fees tend to be kept artificially low and the result is that the condominium associations eventually do not have sufficient funds to invest in capital improvements to maintain the quality of the buildings. In the case of a too high delinquency, the monthly fees increase at a rate greater than the inflationary environment because the association is forced to expend money on legal fees and is unable to collect money due to the association based upon the established budget.
I have never been a fan of condominium associations because even in the best situations, the governing body has a conflict of interest. As owners, there is desire to keep monthly dues as low as possible, but as managers of the association, they are supposed to maintain a well funded financial profile. Unfortunately, most association boards do not fully understand the budgeting process and do not maintain sufficient funds for the long term.
If you are looking for an entry level investment, I would suggest either a townhouse or single family home that might need some minor work that you could do yourself, or join with some friends to create a larger fund to acquire a more robust property. Personally, I like multi-family homes as your risk is more widely spread and if one tenant leaves, you do not lose all of your cash flow.
