New to real estate investing! Start with condo?

Question

Hi all!  I'm Amanda.  I just learned about this site and I'm excited to explore and learn more from people already involved in this business.  I've been reading many books including the guide on this site.

I am looking to take action within the next few months. I would like to start small to get my feet wet.  I am considering purchasing a condo to start. Anyone have experience with this and is it still possible to acquire good cash flow with this type of property?  Any feedback would be appreciated!! Thanks!

Amanda T. · Answer

Thanks everyone. Definitely helped me put things into perspective.

Shari Posey · Answer

It really depends. I would buy an single family home over a condo but that said, I own 3 condos and one single family so I can provide a good comparison. (I live in one of the condos).

I have good renters in all of them and the HOAs are all o.k. but one of them does have a rental restriction. At the time I purchased that one, I was one of the few rental units but now there's a waiting list so I'm screwed if my tenant leaves. On the other hand, I got a great deal when I bought that unit and in the 3 years I've owned it the price has gone up about 40% so I could sell and make a nice profit.

I think the bottom line is to make sure you get a good deal when you buy it so if you decide you don't want to keep it later, you can make a good profit.

Elizabeth Colegrove · Answer

Here are my personal issues with condos as a sterotype

* High HOA fees

* 30% rule - Preventing the number of renters allowed in a building

*Parking Issues

*Utilities

As renting is very important I would not want to rent in an area where the HOA association could limit the ability to rent. Plus the high HOA fees can really impact CAP rates. I personally try to go with townhouses to avoid rule # 2. I watch HOA rates. Also watch if the owner has to pay utilities.

Amy Solomon · Answer

Without reading any of the replies, I personally would stay away from a condo.  It may seem smaller, so less risk, but the risk is the same.  And the fees are higher.  High condo fees, association etc.  If it's a lower price that attracts you,,,,there are plenty of homes out there in the same price range that don't come with all those yucky fees.

Michael B. · Answer

I currently have 4 condos (plus a 5th as a personal residence). Mine cash flow very well, partially because I paid cash for 2 and have paid off the mortgage on the 3rd. But the 4th does pretty well also.

I just know of townhouses in Florida, and they almost all are part of an HOA. The HOA fee tends to be a good bit less, but mostly because the HOA is doing less. The building exterior (including roof) TEND to be your problem, not the HOA. So, yes, a townhouse is something of a hybrid of a SFR and a condo.

One thing that I've found helpful -- get to know the HOA board. Become a known quantity to them and let them know you're interested in bettering the area, not making it worse. HOA boards have an innate distrust of investors. You have to make sure they know you're interested in being a part of the community, even if you live elsewhere.

I rarely miss an HOA meeting in any of the complexes where I invest, and make a point of talking to a couple of the board members for a few minutes each time. They're usually retired guys that really like the attention. They're your eyes and ears in the community and will let you know very early if your tenant is doing something they don't like. They can also give tips on when a place is going up for sale. One of my condos is a deal that I found out about from the board president, and I'm currently waiting to close on one that came from a guy I met in the neighborhood.

I also try to take a board member out for breakfast every now and then. Retired guys love to start the morning with breakfast out when they can, especially if somebody else is paying. For the price of a Egg McMuffin and coffee you can find out what their concerns are and what challenges the board is facing. And that's valuable information for an investor.

Amanda T. · Answer

Thanks for your input Michael. Do you have a good amount of condos?  What's your experience with being able to have a positive cash flow with them?

Also maybe a silly question but do town houses have HOAs?  Perhaps a better in between?

Michael B. · Answer

I like investing in condos, and I realize that puts me in the minority here at BP. A couple of notes:

You're right that the entry point is lower for a condo.  Also in a condo the rent is a larger % of the purchase price than in a stand alone house. And Jon is right that you do have a partner when you're in an HOA, but used properly it a partner that brings good things to the table. Most of the HOA rules that people chafe at are the same rules that landlords want to enforce anyway -- noise, appearance of the building, parking, etc. Like Jon said, a partner.

In a lot of places the choices come down to investing within an HOA or buying houses that are pretty old or out of the metro area. The federal government pushes about all new developments toward creating some type of HOA these days, and have for a few decades now. So most suburban developments are going to have rules of what you can and can't do. In other words -- avoiding an HOA partner is harder than just avoiding Condos.

HOA fees are primarily maintenance and reserves. A lot of the maintenance is done for you by the HOA, usually including landscaping and outside of the building. They can usually do these functions more cheaply than you can just because of economies of scale. If you buy a house you need to eventually put money in reserves for a new roof. A good HOA is doing that all along so when the time comes the money is there. Many landlords don't have sufficient reserves without dipping into personal savings.

One more thought on owning a condo. Lots of Gen Y / Milennials ( or anybody born after 1980 or so)  really don't see the value of the suburban back yard as their parents did. They have no desire to ever own a John Deere nor tend a flower garden like their parents. But they do want to move up and out of the apartment complex. Condos, either renting or eventually owning, fits this rather well. That's the market you're aiming for.

Amanda T. · Answer

Good point Jon.  I wasn't thinking of the downside of the HOA or the limitations it places as Jeremiah also mentioned

Yes Ned the lower entry price, easier rent ability  as well as less maintenance (landscaping etc) were the reasons for thinking of using a condo as a starting point. Perhaps a duplex would be a better starting point then

Thanks for all the prompt responses and insight!

Ned Carey · Answer

Welcome to BP @Amanda T.  Jon and Jeremiah have given some very good reasons to avoid condos.

I suspect you ask about condos because of the lower entry price.  Check out  the Ultimate Free Beginners Guide. There are lots of ways to buy properties at low prices without having to buy a condo.   Good luck - Ned