I'm very close to purchasing a condo in Austin Tx that would meet the 1% rule. I can purchase the condo at 95k and rent in the area is around 950 so it seems like a solid investment. However, the HOA for the condo is 245 monthly and this would make the condo cash flow negative for me.
I was planning on purchasing the condo to live in as a primary residence for a few years before moving to a house and renting the condo out. Now, I'm not sure whether this is a good investment or not. There aren't too many other condos in my price range at this time.
Background...this is my first purchase. I've been renting and am ready to get into a place that I own. This condo is in North Austin/Round Rock and I'm told will probably not appreciate very much over time. It's also a non-warrantable condo as the units in the complex are primarily owned by investors who rent the units out. I guess my confusion is that it doesn't seem like an overwhelmingly profitable investment due to the HOA but there are still investors snatching them up?
@Sam Foreman "I guess my confusion is that it doesn't seem like an overwhelmingly profitable investment due to the HOA but there are still investors snatching them up?"
Without going into all the reasons why this would likely be a very bad investment, I think your latter assessment is correct. Don't let your dream of getting out of the rental market become a nightmare.
I agree with guy. If the first investment you make costs you money each month it's a bad investment and may result in a very short investing career for you. I know you're anxious but there are better deals out there. Listen to podcast 100 and listen to Josh talk about his experience owning a condo. The HOA dues are bad enough but the assessments are what can kill you.
I have a few ideas for you. What if you bought the condo and then invested some more money in remodeling it to make it higher end? Maybe that additional investment would turn the condo purchase into a profitable one. Also, you may be able to remodel the condo and furnish it (basically turn it into a corporate apartment). These rent for significantly more than non-furnished.
When you buy a unit in a condominium building, you should also research the financial health of the building. Find out how much money is in reserves, how often there have been special assessments historically, and if there will be special assessments in the future.
I'm in Austin and just starting out myself, so take what I have to say with a grain or two of salt, but I've been trying to understand the market so here's my thoughts.
1. There's a lot of crazy people paying crazy prices in Austin right now. I'm hearing of people paying 90%+ buying foreclosures on the courthouse steps which is not sane behavior.
2. Most of the people that are investing for buy-and-hold either (a) bought a few years ago. We're in our 44th month of appreciation right now, (b) are buying off-MLS properties from motivated sellers, (c) are buying things they can rehab or rebuild to generate value.
3. Buying a property that you know would be cash-flow negative from the start is gambling on appreciation. Which you've been told not to expect.
4. Property taxes take a big chunk. Make sure you account for them.
5. Given our tax rate and condo fees the 50% rule for expenses may not be conservative enough.
Thanks for the help. The high HOA fee had me really worried and I was trying to fight my instinct to find a place. I will keep looking.
Trust your gut. You're emotional side is simply trying to overcome your logical side.
You make your money on the purchase, if you buy it and already have negative cash flow you will be fighting an uphill battle the entire time you own it. Then you will be tied up into the condo and when a new profitable deal comes along you will not be able to jump on it. My opinion is if you are not sure about the property now, that won't change once you buy it. Hold off a little longer and wait for the right property for you.
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