Originally posted by @Michael Boyer:
I do some condo rentals (goes against conventional wisdom some with HOA, assessments, etc). So you have to be very careful. Maybe check:
1) Owner/rental ratio (what loan programs is the association approved for; this is so you can easily market and sell if needs be).
2) Section 8 and condos just does not line up for me fyi, so could you get market rate paying renters? The condo concept works best with owners and some renters (having section 8 is interesting to say the least)
3) Major capital expenses pending? This would be assessed to you x 7 here ...Do they have reserves?
4) Read all the minutes, rules, policies, financials, etc. The politics may be peaceful or even openly hostile with legal actions. Also, see if you can get a sense of the stance towards renters (problems, fees, limits, etc).
5) Can you exit, even if owner financing them?
Be thorough in DD and inspect them all, find out more about the association. It can be an extra layer to work with. Again, condos don't always make ideal rentals, but people make it work. There can even be ways to add value, for example, by eventually turning these into owner occupied units by selling (owner financing, then passing dues and management on to someone else). I would like it if I though I could owner finance them one by one for 50 K in the next ten years. Then you also get in good with the association with a long term plan to make these rentals (which many condo associations may not like) into vested owner occupied units. Also, with that many you may even want to get on the board if you end up buying as everything, (fees, dues increase, assessment, rule) applied to you in a multiple of 7!
Thank you for your detailed response Michael! It is very helpful and gives me a lot to research and consider for sure. This complex was built in the late 70's as individually owned units. Over time, the original owners have died/sold off, and the majority are now rentals. I think I would be the largest single owner of units, but there are other investors with multiple units. The HOA has a good reserve at this time, and plans capital expenditures based on the ability to pay whenever possible. There is nothing pending at this time.
At $30K per unit @ $6K gross rents, it's a 20% gross return. A $210K single family home would have to rent for $3,500 per month to provide this same return. Also, while having all my eggs in one basket would limit some costs, it would also mean a larger loss if the property is vacant. So lots to think about; I appreciate the information!
I definitely like the idea of transitioning the units to owner-financed sales down the road, and judging by recent individual unit sales, there is potential for bigger profits from those type of deals. Mark
