Is investing in condos always a bad idea?

Rental Property Investor · Chicago, IL · Member since 2013 · 100 posts · 85 votes

Is investing in condos always a bad idea? For example, I have heard of people having lots of problems in condos with 100+ units, and very high HOA fees. But what about a condo in a 12 unit building? Is this still, generally, a bad idea?
Thanks in advance!

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Michael B.

Apopka, FL · Member since 2012 · 207 posts · 120 votes

13y

A lot of people don't like investing in condos, but others do. I really like condos. they tend to be cheaper per sq. ft. than houses. And the rent tends to be a higher % of purchase prices than houses.

One issue that people have with condos is HOA fees, and they are frequently steep. But think about what HOA fees really are. They're primarily maintenance. House buyers pay them also, but they're called different things. They're called 'lawn maintenance'. They're called 'setting aside cash to put on a new roof someday'. They're called 'building insurance'. The economies of scale present in a condo investment reduce the cost of maintenance considerably.

The thing that I'm always interested in is how well run is the HOA. You have a partner when you invest in the condo, and that partner is the HOA. If it's well run then you have people to watch over your investment at little or no cost. If the HOA is poorly run you may have unending issues.

Before I invest in a condo complex I always try to meet at least 1 HOA board member. They're almost always retired guys that love to meet new people, and think having breakfast with an investor is a great thing. For the price of an Egg McMuffin and coffee you can usually get a lot of good information on what's going on in a HOA. It's money well spent.

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Lance H.
Real Estate Investor · Woodbury, MN · Member since 2008 · 133 posts · 43 votes
13y
One recommendation I have is to check the specifics of the condo's rules for rental units, not just what the bylaws say. The one condo I own has some very generic notes in the bylaws about rentals being allowed. What the bylaws didn't say is that the association charges a $250 move in and a $250 move out fee. That is an extra $500 expense every time renters change out and can really throw off your numbers! My favorite part about this fee is what I get for it. I send the condo a 1 page document with the tenants contact information, the $500 is for them to update the contact information in their records!
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Xing Zhu
Durham, NC · Member since 2012 · 498 posts · 48 votes
13y
Condo must have great market right now in major cities. Toll Brothers are extending more into condo market.
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
13y
Originally posted by Lance H.:
One recommendation I have is to check the specifics of the condo's rules for rental units, not just what the bylaws say. The one condo I own has some very generic notes in the bylaws about rentals being allowed. What the bylaws didn't say is that the association charges a $250 move in and a $250 move out fee. That is an extra $500 expense every time renters change out and can really throw off your numbers! My favorite part about this fee is what I get for it. I send the condo a 1 page document with the tenants contact information, the $500 is for them to update the contact information in their records!

Lance H., thanks for sharing that piece of advice. That is nothing but a crazy money grab! On a side note, is the HOA an all volunteer board or are they paid to serve? I wonder where the $500 per turn-over goes if they are not a paid board. It would be interesting to see what those funds are used for.

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Shari Posey
Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
13y
I wish board members were paid! They are voluntary but the HOA may pay a management company to handle many of the functions. Actually, these fees can be quite high but hardly any members want to get saddled with ongoing management tasks.

The move-in move-out fees are just revenue for the assocation.
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Robert Steele
Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
13y
One of the things I like about REI is the control. When you buy a condo you are relinquishing some of that control. You cannot control the HOA fees and special assessments. No thanks, I'll pass.
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Kevin Haddad
Granada Hills, CA · Member since 2013 · 2 posts · 0 votes
13y
Michael B. you make a lot of great points that are making me reconsider my thoughts of only investing in SFR.
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Phil M.
Developer · Staten Island, NY · Member since 2009 · 88 posts · 9 votes
13y
Co-ops tend to have significantly higher HOA fees then condos. In NYC, some condos can have HOA fees as low as $50/month and as high as $400, while co-ops can be as high as the monthly mortgage cost itself (I have viewed a few with HOA fees in upwards of $1000/month).
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Darren SagerPro Member
Investor · Tampa, FL · Member since 2013 · 2k+ posts · 1k+ votes
13y
I have a friend in California that all he does is purchase condos and he's quite successful at buying and holding them. He looks at the history of the HOA fees as well as their reserves on hand before he would ever consider making an investment. When considering a co-op you also need to take into consideration that taxes and usually your heat and other utilities may be included in those costs. If you add your taxes and cost to heat to a condo with HOA fees it may be less than a co-op.
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Jiri Vetyska
Investor · AZ · Member since 2014 · 31 posts · 10 votes
11y
I am no fan of condos in general because of the lower cash on cash return, thanks to HOA dues, but having said that, I own one condo and it was one of the best investments I ever made. I could never find any value in condos in cheap areas, but on the other hand, condos are very nice investments in expensive areas. Where there are few apartments and a house next door costs around a million bucks.
As far as my condo goes, I bought in great area, paid less then 200K for it and now it's worth over 350K, two years later. There was nothing to do, so I rented it few days after buying it. And it takes me exactly 1 hour to rent it, I've never done more than one hour open house - and always rent for more than I my most optimistic estimate.
There aren't many good ones on the market, but there are tons of bad ones... If you see a nice condo in great area, grab it fast!
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Jiri Vetyska
Investor · AZ · Member since 2014 · 31 posts · 10 votes
11y
Originally posted by @Lance H.:

One recommendation I have is to check the specifics of the condo's rules for rental units, not just what the bylaws say. The one condo I own has some very generic notes in the bylaws about rentals being allowed. What the bylaws didn't say is that the association charges a $250 move in and a $250 move out fee. That is an extra $500 expense every time renters change out and can really throw off your numbers! My favorite part about this fee is what I get for it. I send the condo a 1 page document with the tenants contact information, the $500 is for them to update the contact information in their records!
It's not uncommon to have $250 move in fee (I don't thing there is such a thing as move out fee, since move in/out is one change of tenant). Generally the idea behind it is to lower the turnover of tenants. Nobody want's to have a different neighbor every few months. And you as owner, just forward the cost to the tenants. No big deal.
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Jesse T.
Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
11y
I think quality matters a ton for condos. If the location, condition or association are less than ideal, it may be best to pass.
While a smaller association will likely be more flexible, I think risks of special assessments or financing issues would be much higher. Not necessarily that it should be avoided, but that it should be looked at very closely.
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