Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
Condos come with a little bit of more risk and the reason for that is that they are tied to the other properties in the existing neighborhood because when you talk about a condo complex, every single unit is typically the same and there are two different variations or a maximum of three different variations. But the problem that you have is you cannot do anything to improve that property. Everything looks the same from the outside, the only thing you can do is interior but you are not going to get a ton of value when it comes to changing the interior unless you put gold-plated walls in. The problem that you have is if someone else lowers their price, it automatically affects your value because there are not enough differentiating facts.
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
15y
What about the view, the floor, the amenities? There's much more to it. I've seen condos range in price by hundreds of thousands of dollars simply because of a view. I've also seen smaller, but significant price differences due to the amenities in a property.
BTW - None of the condos I'm referring to have "gold plated walls"
I'm not sure about the risk that you're referring to, but the most significant risk that comes with a condo, IMO, is typically in the board & HOA.
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
15y
What about the view, the floor, the amenities? There's much more to it. I've seen condos range in price by hundreds of thousands of dollars simply because of a view. I've also seen smaller, but significant price differences due to the amenities in a property.
BTW - None of the condos I'm referring to have "gold plated walls"
I'm not sure about the risk that you're referring to, but the most significant risk that comes with a condo, IMO, is typically in the board & HOA.
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
Even the repairs Jason, one cant afford that much while having a condo. They are definitely not great investments, you just have to buy them for less money. For example if you are purchasing a condo under $55,000 that is what it is going to resell for. You need to buy that condo at 25% minus the cost of repairs. If the property does not need any repairs and it is a condo, you could pay $13,750 for it. If that property does need even $5,000 worth of work, the most you are going to be able to pay for that property is $8,750, if it is going to resell for $55,000. So, its quite obvious that they carry a lot of risk.
Real Estate Investor · Select a State · Member since 2010 · 79 posts · 17 votes
15y
In my experience condos can be fantastic investment, of course it depends on the local laws, HOA fees etc. But the 70% rule applies to most types of property and monies still can be made. Be it condos or houses or 8-plexes.
There is and always will be risk, but risk can be managed with education, experience and not overpaying in the beginning :)
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
They could be good Silver but if they do not require a lot of repairs because with repairs the chances of profit declines. Even then if you compare it with another normal house, the profit margin in the latter would bigger than the condos.
I think condos are best only when they do not need any repairs.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
15y
I think Alice is talking about flipping condos. And my hat's off to you if you can buy for $8,750 and sell for $55,000 with $5,000 in repairs. Condos are very much out of favor here and there is barely a retail market left.
For me each deal is different. I don't flip, so form a rental perspective... I'm finding margins on condos are generally better than SFR lately... only because the prices are dirt cheap (50% of the comparable SFR). The HOA and its board have to be reasonable or your numbers have to be good enough until you get on the board and fix the problems.
Residential Real Estate Broker · la mirada, CA · Member since 2011 · 66 posts · 12 votes
15y
Education is the main thing, as long as you are informed, after all it's only money just keep in mind that it's YOUR MONEY, and since it is in starting out, lets say you want to buy and resale or later refinance and you are able to find a very cheap deal, as-is paying cash on this condo. And you were told and signed that your buying as is, no contingencies. So this is were Education will keep you out of untold problems. And you signed papers advicing you to do your own due diligence. These steps you would be wise to find out. As they will come up on the sale or refi. You may be able to get a loan but any of these red flags will limit the lending avaliability. Fannie Mae and FHA, now declare mortgage loans products on condos involved in any type of litigation, other than minor litigation (i.e. disputes over rights of quiet enjoyment) are ineligible. Or if more 51% are rented, or if 15% are delinquent. These are simple things you can do to find out were you are and what you will do, with that info ain pull the triger. And the biggest red flag will come up with comps if nothing has sold in the past months, unless it is a small project, you better get info. So any deal can be good as long as you are EDUCATED. and also ask if ther any special assessments, there more things to know, but with these you can make an educated guess.
Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
15y
I have a rental condo in a complex where all the condos have the same floor-plan (unless you have made changes since they were built) But the rental rates and sales prices can be much more by adding a washer/dryer hook up. So I think there can be variation between condos even though they are very similar.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
15y
Originally posted by Alice Green:
They could be good Silver but if they do not require a lot of repairs because with repairs the chances of profit declines. Even then if you compare it with another normal house, the profit margin in the latter would bigger than the condos.
I think condos are best only when they do not need any repairs.
I don't think there is any actual data to back up your claims that condos are not great investments (relative to SFH). Show me data that says they appreciate slower or depreciate faster over time.
I also disagree with "with repairs the chances of profit declines". I think it just the opposite. The only way you typically get a great deal when buying a condo is when repairs are needed. That lower purchase price is where you make you profit. Buying an already rehabbed condo has no profit in it usually becuase-as you say- the selling prices are going to be very similar to others. So when no repairs are needed you generally have to pay market value.
I also disagree with the profit margin being better for the same price house. There is just no basis for making that general statement. Everything is dependent on the deal you get when you purchase, not the price level of the home. I have lost money on $100K homes and made $30K on $100K condos...and it could be vice versa, no general rules.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
15y
I agree with posts by willingtolearn and Kyle. If you can find those price differentiators, they can make a big difference. The key is knowing your customer. Even new appliances can make for a 'product' differentiator. If nothing else, your product will most likely rent faster.
As for lack of Fannie Mae and FHA financing... that's what is killing some markets tight now. If the average person can't get financing, then there are no qualified buyers and no sales. No sales causes a buyers market or no market at all. Sellers that must sell can't, and distress sales start. Prices fall. Pain. Suffering. Misery. Capitulation. Of course, I'm buying... last resort kind of thing... if the product is marketable to renters and the normal rental cash flow "rules" apply. In four or five or six years when some hope re-appears... some relief from the housing meltdown... maybe even some optimism... I'll gladly sell. If FHA still won't finance in 4-6, I will. And in four to six years, I may be able to sell at full retail, maybe with some really great terms since these properties are 'free' at that point. And one thing I can almost guarantee, the mortgage payment (PITIH) will be +/-10% of the rent amount.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
15y
Didn't see Eric's post... I agree there too for the most part. He says "Everything is dependent on the deal you get when you purchase..." That's the key in virtually any market. Yup, those "dogs" that need some paint really sit around in this market. "The only way you typically get a great deal when buying a condo is when repairs are needed." Yes, unless it is bank owned and they will sell to ANYONE. I go in with a quick close, cash sale and keep the price as low as possible.
In my experience(s), most condo repairs are significantly quicker and cheaper than a SFR. Courthouse sales (I've done 5 or so condos) typically need the most rehab but are lowest priced the way I buy.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
15y
We're pretty much not lending on condos because of the additional risk of the condo assn, and because of the reduced exit strategy if it's not 75% owner occupied.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
15y
Not thinking of any of the many other possible problems, condos are the first to go down in a soft market and the last to come back. Having said that when the market gets really hot knowing condos do come back can make for some profit making.
If young people get priced out of housing they start going for condos.
Real Estate Investor · Kalamazoo, MI · Member since 2010 · 681 posts · 241 votes
15y
We've had success taking on short sale condos and flipping them, with good profits.
We're also builder / developers of a condo development (custom, high end, green built) and see a big demand to buy condos. (They just can't sell their homes so they can buy!) There are lots of baby boomers approaching retirement age that don't want maintenance, and condo living is attractive to them. Also, although we don't lease our condos, we get lots of calls from people that are interested in leasing, so that is another market available for condos
While there can be a downside to condos, you can't lump them all together. There's a HUGE difference between an apartment conversion, a skyrise condo building, and a high end, custom condo neighborhood. Investing in condos is like any other real estate investment. You need to look at location, demand, market value, etc. in determining if it fits your investment strategy. Two exact condos can sit side by side. One has basic appliances, builder beige walls and carpet, modular tub shower, and laminate countertops. The other is finished with stainless appliances, granite counters, faux painting and decorator colors, wood or cork flooring, and ceramic showers. Although they are the same floorplan and square footage, they will be a big price differential.
I have to respectfully disagree with the statement........"you are not going to get a ton of value when it comes to changing the interior unless you put gold-plated walls in. The problem that you have is if someone else lowers their price, it automatically affects your value because there are not enough differentiating facts." SIMPLY NOT TRUE!
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
As most of the people are talking about drawing comparison between SFR and condos. I would like to give an example. In most neighborhoods, there are no two homes that are exactly identical and if somebody has a property for selling and they lower the price, someone else may not have to lower their price in order to sell their property because there are enough differentiating facts when it comes to the property itself. The floor plan is a little bit different because there are differentiating features when it comes to the property itself. But when you are talking about condos, there are no differentiating features other than the color of the paint or other than the carpet that is being put in or the color of the tile, which most buyers are not going to pay a lot of extra money unless it is a new bill to get some of those features. The only thing that you can do is compete on price. You have got more risk with condos because you are competing on price and anybody else that changes price in the neighborhood is going to have a direct impact. When you are selling condos, you need to be the cheapest condo out there.
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
15y
Respectfully Alice, I think you're completely wrong. Both about houses not being the same and about all condos being identical other than paint color, color or tile. As a former agent and someone who has invested in condos, I know your assertions to be wrong based on personal experience.
Just curious - What part of the country do you live in? Are you in Salt Lake City as your profile indicates?
Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
15y
It appears Alice that your assertion is a Condo is more of a commodity and as such would be susceptible to downward price moves more so than a SFR. I believe that Condos may be more risky for the reasons Ann Bellamy Cited, "additional risk of the condo assn, and because of the reduced exit strategy if it's not 75% owner occupied." I would like to hear more details about these risks.
Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
15y
Originally posted by Alice Green:
As most of the people are talking about drawing comparison between SFR and condos. I would like to give an example. In most neighborhoods, there are no two homes that are exactly identical and if somebody has a property for selling and they lower the price, someone else may not have to lower their price in order to sell their property because there are enough differentiating facts when it comes to the property itself. The floor plan is a little bit different because there are differentiating features when it comes to the property itself. But when you are talking about condos, there are no differentiating features other than the color of the paint or other than the carpet that is being put in or the color of the tile, which most buyers are not going to pay a lot of extra money unless it is a new bill to get some of those features. The only thing that you can do is compete on price. You have got more risk with condos because you are competing on price and anybody else that changes price in the neighborhood is going to have a direct impact. When you are selling condos, you need to be the cheapest condo out there.
I know of neighborhoods where all the SFHs are the same floor plan and I know of condos that are very different. Properties can almost always be changed beyond just the paint and floors. Remodeling can change the layout, upgrade appliances, improve bathrooms and kitchens, all things that can have a significant impact on the price.
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
Originally posted by Joshua Dorkin:
Respectfully Alice, I think you're completely wrong. Both about houses not being the same and about all condos being identical other than paint color, color or tile. As a former agent and someone who has invested in condos, I know your assertions to be wrong based on personal experience.
Just curious - What part of the country do you live in? Are you in Salt Lake City as your profile indicates?
These were some of the things, which I have discussed and with condos you know that there isn't much to do on exteriors.
Yes I am from Salt lake City.
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
15y
You're right, Alice. With a condo, you can't typically alter the exterior, but as others have also mentioned along with me, you own the interior space in a condo and can do with it what you will, provided your HOA doesn't prevent it. Along with the other factors that I've explained before, you can see dramatic differences in prices with condos.
I'm not disagreeing that a condo has more risk than a typical SFR, but I believe that your assertions that the only factors that are relevant with a property are exterior changes and everything else is nominal - I believe to be dead wrong.
While I'm sure you can find examples to prove your case, I can find just as many to disprove it.
Finally, when the house across the street from yours with a similar square footage lowers their price - they are also lowering the value of yours - unless you ignore the property in your comps.
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
I totally agree with you Josh. I believe there are lots of opportunities with the interior but my whole point behind this discussion was that in the end, condos should be purchased in lesser prices as the profit margin is a bit thin, as many members have agreed.It's just that, you should be smart enough to make your move and a bit experienced too.
Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
15y
I agree with Josh, the board and HOA's are the biggest problems. I also think that they are much tougher to sell when you wanna unload one. I like single homes.
Real Estate Investor · Kalamazoo, MI · Member since 2010 · 681 posts · 241 votes
15y
Originally posted by Alice Green:
But when you are talking about condos, there are no differentiating features other than the color of the paint or other than the carpet that is being put in or the color of the tile, which most buyers are not going to pay a lot of extra money unless it is a new bill to get some of those features. The only thing that you can do is compete on price. You have got more risk with condos because you are competing on price and anybody else that changes price in the neighborhood is going to have a direct impact. When you are selling condos, you need to be the cheapest condo out there.
Alice....I don't know what experience you have with condos, but I totally disagree. The very first back to back short sale flip we did was a condo in a highrise in Chicago. We made about $27,000 profit. Recently we did a short sale flip on a condo in California. There were others in the building available at lower prices, but this one was in the back with a great view so it was worth more than it's neighbors. Even if the condo exteriors are the same, there can be a huge variance in finish detail, location and view. I do agree with your last statement that ....."You should be smart enough to make your move and a bit experienced"...........and I think that advice applies to any real estate investment.
Real Estate Investor · Salt Lake City, UT · Member since 2010 · 47 posts · 6 votes
15y
Originally posted by Joshua Dorkin:
The profit margin on a 100k condo should be the same as that on a 100k SFR, shouldn't it, provided you buy it using the same formulas?
I think there's always risk involve. What if there's a decline in the price of other condos in neighborhood? All of them looks similar. You can only do the changes in the interior but you can't increase a room or a bathroom in there. So, if someone else change the price in the vicinity, automatically you have to reduce it too. Do you have much options left with that?