What to look for in a townhome/condo house hack (Denver)

Question

Hey BP,

I'm interested in acquiring my next property and would like my next deal to be a house hack instead of another OOS rental property. I'm currently in Boulder, CO but would like to buy a townhome/condo in the west Denver area(arvada/westminster). Live for a year or 2 and have it be a normal rental when I move out.

As I start looking at properties, I'm wondering what are some good things to look for when searching for a townhome in terms of layout plans/location any gotchas etc. I'd like to hear if anyone has personal experiences with a 3bd/2ba type place vs the larger 5+ bedroom deals.

Steve K. · Answer

@Franklyn Roth good advice here already regarding HOA fees and restrictions. Something else to think about specific to the Denver market is location. Denver has a lot of great areas that are likely to see high appreciation, but also some perpetually low-income areas that aren’t appreciating as well as highly polluted areas that are facing major challenges and should be avoided. If you can find a place in the “path of progress”, you’ll be setting yourself up for success (think about buying in RiNo, Sunnyside, Highlands, etc. a few years ago).  I’d look along the edges of those already-hot areas. There are also some inexpensive areas close to downtown that are starting to turn rapidly. As far as number of beds goes, a larger house will be easier to cash flow if you’re house-hacking or renting by the room, but 3/2 is going to be the most desirable layout in terms of appreciation potential/ ease of resale as there are a lot more buyers looking for that size house than there are people looking for a 5 bedroom house.

Joe Kaliher · Answer

@Franklyn Roth you'll need to request them from HOA or current owner.

Frank R. · Answer

Thanks @Taylor Hudgins I'm planning to move around when my lease ends August 1st here in Boulder.

@Joe Kaliher You bring up good points. I will be doing a conventional loan so should be less restrictive than FHA loans. Is their a good resource to or lookup tool to dig into the financial stability of the HOAs?

Joe Kaliher · Answer

Hey Franklyn,

Here are some things I would consider:

HOA: How much is HOA and what are you getting for it (Trash, water, pool, etc)? The HOA can make it very difficult to cash flow. Numbers have to work even better than a house due to HOA being in perpetuity.

FHA/rental restrictions: To be FHA eligible the HOA has to meet certain owner/occupancy restrictions. If you don't need an FHA loan, then I would look for one without rental restrictions. If you do need FHA, just be aware that there may be a wait list to be eligible to rent out your unit when you want to move out. This could complicate your move-out timing.

Assessments: Dig into the financial stability of the HOA. Last thing you want is an HOA without enough reserves, and then you get hit with a big bill.

Rent: Apartments/Condos will generally rent for less than a comparable house. I would use rentometer to help you get a better idea of what you could get in rent vs a house in the same area.

Mortgage Rate: Your mortgage rate will be higher on condo vs traditional house. Since a large portion of the value of the property is in the hands of the HOA and not you, it is a riskier loan for the bank. I would anticipate 13 to 25 basis points higher than a traditional loan.

Every HOA and condo unit is different so its hard to compare apples to apples with HOA's right across the street from eachother.

I mention a lot of negatives, but if the numbers can work its still a good deal! I am trying to do a condo flip right now in Aurora, and I have just had to be very selective.

Best of luck!

Taylor Hudgins · Answer

Hi @Franklyn Roth!  Congrats on moving on to your next deal!

Definitely make sure to check with any condo association on their renting rules.  Some are totally fine with you renting out the property, some have restrictions, some don't allow renting at all.  And of course any condo fees!

For the 3bd/2 ba vs. 5+ bedrooms, they'd definitely attract different types of tenants.  The 3 bed/2 bath would be great if you're looking to rent out to smaller families (assuming it's in a mostly residential area) compared to the 5+ bedroom where you're probably renting out by room.

Are you planning to move to the Denver area soon?