Would buying a condo in a great area of town be a bad investment? When trying to obtain financing the lender strongly suggested against buying a condo. I thought it would be a good idea since it was in a popular area of town and could generate high rents. He mentioned the lower likelihood of obtaining financing, too many HOA rules, and the inability to resell. I thought I could use this as my primary residence since I have no children; and place it on AirBnb while I travel and when I'm done, just rent it out. Any thoughts?
Condo's often times seem like a very nice investment because of the low price and the ability to get high rents on them. However, the HOA usually kills that idea. Not only does the HOA take away alot of the cash flow you could be getting, they could change the rules to not allow rentals in the units anymore. Also, say the building needs a new roof, do you want to guess who the HOA will make pay for that? I am not sure how the financing to get the condo would be that difficult on it. I currently own two condo's and I would HIGHLY recommend that you know the decs & bylaws and also become an active board member, or atleast attend the meetings so that you know exactly what is going on with budget, rules, etc. I, too, use to live in one of my condo's and then turned it into a rental and it has worked out well for us, but again, you must know all of the ins and outs and build relationships with the HOA. I wouldn't discourage it 100%, but also would tell you to tread lightly.
Condos can be a great investment, but have a lot more things to watch and look into before purchase. There can be issues with financing if the HOA does not keep track of things correctly, but those cases aren't the common ones. As Josh stated, you need to really look into all the HOA paperwork and see where they are sitting with their reserve funds for future expenses. Your personal maintenance in the unit itself is usually less, but if the HOA does not have the cash for big CapEx items then you'll have to pay your percentage of that when it happens. If you have the time then going to board meetings can be very helpful.
Thanks @Josh Mitchell ! I noticed some of those HOA fees can be ridiculous. I passed over a couple condos because of some of the rules I noticed in the documents my realtor supplied me with. My lender said that the fees on a condo loan are higher than any other loan. Sigh...
Thanks @Dan Mackin ! I didn't know you can actually see the reserve the HOA has on hand. Hmmmmm, interesting. I wonder if they will allow me to view before a purchase.
Likely what you would have to do is make the offer and have a contingency for the HOA documents. Then if they don't look right you can get out.
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