As a recent graduate, I'm hoping to gain more perspective on situational and financial limitations that stop people from making certain investments.
At the moment, I'm trying to figure out why most young people or people in general who work in the metropolitan areas in their respective cities seem to be uninterested in starting their real estate journey with condo investments.
For instance, if rent for a 1 BD 1 BTH apartment is typically around 1.25k - 1.6k a month for a certain area near a metropolitan area and condos in the same area (or better) are for sale around 250-350k with an estimated monthly mortgage of 1k to 1.6k. Would it not be an obviously good move to start your real estate investment journey buy purchasing a condo so that 1k to 1.6k you would've spent on rent can go into building equity in your first property? I'm also aware of fees that may come with condo's that cover up keep and etc. Even if you happened to move in 2-4 years, you can now hold that property as investment property, hire a property management company and now you have your first property.
I know that down payments can hinder some, but what if the person had a decent amount of money saved. And even so, couldn't the person apply for an FHA loan (assuming they are a first time home buyer) that could help decrease the required down payment to make it less financially stressful for the initial investment into the property?
I personally am moving to a new city that has great growth ahead of it. I'm currently interested in starting my journey in real estate doing something similar as mentioned above and would love to chat with someone about the details, what I should consider, and how best to analyze if this type of investment makes sense.
This is exactly what I am doing here in Chicago, where I was renting a $2,000/month apartment with a roommate, but one month ago I closed on a 3 bedroom condo. I have roommates in the other two rooms, and now my portion of the mortgage (including HOA) is just $290/month since they are each paying me $900/month. You can't really live anywhere you're happy with for less than $900/person in downtown Chicago.
I'm 25 years old, and in 2-3 years I plan to keep the condo as a rental because even right now I could likely rent the condo for $2800. Anything you buy, my suggestion would be to make sure you always have renting it as an exit strategy, and hopefully for at least a few hundred dollars above your monthly payment. I would also suggest having 1-2 extra bedrooms and getting roommates while you're young in order to lower your expenses and expedite your savings for the next move.
I've always wondered about the pros vs cons on condos/townhouses in my area so I'll definitely be following this post. Great question!!
@Derek Luttrell In Chicago, what area is your condo in / what areas do you typically look for with condos?
This is an awesome thread. I'm new to the real-estate investing and working on my first flip in Edgewater, but condo-hacking / rentals are something I'd like to get into as soon as I can!
@Maria C Quimpo since it was my first purchase and I knew I'd be living there for at least 2-3 years, I looked for something close enough to work to ride my bike to. I ended up Ukrainian Village on Chicago Ave, about 2.5 miles west of my office. In the winter, there is the 66 bus that will take me straight to and from work as well.
While looking, I also wanted to make sure it was in a desirable area and living space for renters. Chicago Ave is steadily expanding and improving, and I'm a mile or two from all the Logan Square/Wicker Park fun. Especially since I've established a proof of concept by having two roommates currently paying $900/month, I don't have many concerns with getting it fully rented in a few years.
If you wish to purchase a condo to live in that is fine keeping in mind it is purely a life style choice.
As a investment income property it is a very poor choice. HOAs are a major pain if you wish to rent it out, neighbours dislike renters, renters never respect condo rules and with rising fees and special assessments you can rarely produce any true positive cash flow.
Condos as a investment are simply too risky. When the markets turn in the future you will be upside down for a very long time.
As a condo owner myself, I will be glad to share my insight.
I originally bought my condo and lived in it for 10 years before turning it into a rental. It was purchased at the height of the market and today it is still worth 15% less than what I paid for it in 2005. I have found in my area, that the only way to be successful with buying and holding condos is if you acquire them as foreclosures or buy them really cheap. Here are some of the issues I have encountered over the years.
1. Most Condo associations are poorly run. Self-interests, conflict of interests and just poorly run boards and associations is very common. Lack of Planning for future capital projects is common.
2. Special Assessments eat into any profits very quickly.
3. If you are renting out your condo ( and everyone else is doing the same), isnt that just an apartment building. Each person living there has no vested interest in maintaining the property or looking out for one another.
4. Most States pretty much let the associations run themselves ( by inexperienced volunteer boards) so problems persist and rarely get resolved to the betterment of the association. State Laws and Condo Covenants are usually antiquated and not kept up to date. In addition, changing your Condo Rules is difficult and most investors are hands off, only collecting their rent and not caring about the community.
5. HOA, COA, etc. need to be redefined so that it can actually be a community.
Here are some positive things about owning a condo:
1. You only have to take care of the interior of your units. Outside walls, landscaping is handled by the association, which you pay for. And it might not always be up to your standards.
2. In a well run association, in good markets, great passive cash flow can be generated.
Be sure to choose your association wisely.
I will add that my condo building has only 3 units, and while it allows renters, both of the other units are owner-occupied. I could see problems in large buildings with dozens of units and stricter associations.
In my market, I am too late to the party to buy any multi or single-families in the city, so condos are what I have left to choose from. I bought a condo because I found BP and didn't want to rent anymore, but condos will not be how I build my portfolio from here on out. I just needed to start somewhere in the market that I'm in.
There are definitely pros and cons to a condo. I own both condos and SFR. Often times people have criticized my willingness to by condo units claiming that they are always poor investments. Just imagine NYC, Chicago, Boston, etc with no condo units. Often times these units in the cities sell for for a higher price per square foot then the SFR if it even exist in the area.
Choosing the HOA is a key component. Some of my units that are condos have amenities such as a pool and utilities that are included the HOA dues. This allows me to give one flat price to the tenant for the property and utilities. My tenants seem to like knowing the total cost upfront. I like the fact that The HOA covers the exterior such as lawn mowing, snow removal, tree trimming, etc. I self manage my properties so I tend to look at the HOA as reducing what I manage myself.
The SFR I do a periodic drive by to ensure the exterior upkeep is being done such as the lawn mowing in addition to my by annual inspection of the property. These are things that I don't typically worry about so much with my condo units because it's maintained by the HOA. Truth be told in my area many SFR developments also have an HOA as well.
The SFR will appreciate, hold it's value, and recover in a downturn the best but there is typically more upfront investment. There is also more individual risk of large expenditures to the property owner since there is no one to share in the cost.
The condo on the other hand, the property owner owns the risk associated with poor management from the HOA and the possibility of a special assessment for maintenance and repairs.
Overall, condo units can be a good investment if you do your due diligence on the property, HOA, and have a sound investment plan with exit strategy.
I agree with @thomas s. Never buy a condo as an investment to rent out....its just overall going to be a more difficult investment vehicle. If you are solely buy it to live in that fine, just know the HOA fees never go away and only rise.
Originally posted by @Patrick Queisner :
Just imagine NYC, Chicago, Boston, etc with no condo units. Often times these units in the cities sell for for a higher price per square foot then the SFR if it even exist in the area.
This is a great point that I would like to re-emphasize and elaborate on. I'm no fan of condos, but those that I have seen succeed with them are buying them in primo, central locations, where population is dense and condos and townhomes are the main type of property available. So, it comes back to location, location, location. If you are thinking about investing in a condo or townhome, you are better served IMO by doing it in order to get into a highly desirable location more so than because they are cheaper. Even then, I would favor complexes with lower HOA fees (which usually means fewer amenities) and restrictions, and make sure the HOA is well run and in good financial standing.
My very first investment was a condo, mind you in Brisbane, Australia. Still HOA exist, it's in a small complex of 7. HOA has no rules about renting it out, currently I believe only 3 of the 7 are rentals but its close to public transport and amenities around the area. It's been a solid winner in terms of always occupied and I did buy it cheap and updated it, so forced appreciation and in comparison to newer condos it offers far more square footage for the same rental price.
I think buying smart a condo is a great investment BUT I would not buy in a huge complex with pool, elevators and gyms. Those are just going to increase the HOA fees yearly