Hello fellow BPers
I am considering purchasing a condo in a college town and was wondering what up sides and the possible pit falls were in doing so.
Thanks in advance for your input.
I definitely recommend listening to the Bigger Pockets podcast with Nazz Wang to hear some firsthand accounts on the issues with condos.
My take is that it's most usually a bad idea. The HOA becomes your business partner, whether you like it or not. They are a business partner that collects a high salary on top of it.
HOAs are usually an arm of authority for owner-occupants to exact their will upon their neighbors and non-occupying landlords. I have never encountered an HOA that was super friendly to landlords who owned in the building. Generally, you are viewed as more of a problem than not. I believe they are wrong about this in a broad sense, but their purpose usually has nothing to do with investment or sound financial decisions, and more in regards to creating an ideal environment for their stakeholders.
Since the total makeup of the residential portion of my investment portfolio is high rise condos, I will share my thinking on the subject
1. Condos are a way to participate in the "urbanization" trend
2. Since HOAs make sure rules are enforced, you rarely have situations of tenants destroying/damaging property or conducting illegal activities from your property
3. Since the HOA is responsible for everything outside the walls, much less time is spent with maintenance and repair items, contractors, etc.
4. HOA fees are higher than repairs and maintenance on most single family properties, so your net income will probably be less.
5. SFR will appreciate more than condos in the same area - areas such as downtown where there are no SFR are an exception.
So in summary, if time, ease and lack of hassle are more important than extra cash flow, condos can be good. You would probably make more money (in general) with SFR.
HOA may have codicils which prohibit renting and even if not now, can occur anytime/overnight in the future.
Thanks guys. I also had questions on condos as potential buy and holds. I'm looking for my next good deal, and condos seem to keep popping up on my radar lately... Didn't pull the trigger because its a new animal to me- I don't know enough about it to feel confident yet...
thanks for the pros/cons of this!
I would echo Don above. I have been in condos since 2002. I've had up to 4 as rentals (2 currently). It goes against the conventional wisdom some to use them as rentals (but many people do it)... Once you work in dues (and assessments), the cash flow is tough (unless you get a screaming deal). Mine actually penciled out better at purchase but the dues have outpaced inflation and my rent increases.
I like them as Don also alludes more as lifestyle fits for people unable or interested in the traditional exterior maintenance of a small multiplex or single family. And in my area, they tend to be cheaper than sf, easy to rent, and have appreciated nicely (few blogs about them as appreciation plays)..
The key is also finding an association where you even can rent them (allowed by condo declarations/by laws etc), and even the organizational culture needs to be open to renters (many forums on restrictions). Look for disputes about rentals, extra fees, restrictions on rentals.
My best .02 tip is get on the board or get involved (I was President of 2; VP of 1)... you learn a bit about larger scale property management and can counter the absentee landlord perception. I could go on....Feel free to message me for any questions on my condo rental experiences or ideas. Best of luck!
If your renting to undergrad college students be prepared for everything that can go wrong (in not all cases). In my experience you can get higher than average rents but the units will take a lot of neglect and abuse and leases terms are not followed relative to renting to older professional types. So the monetary equation between higher rents balanced out with higher vacancies and repairs.
The other negative issue is it is harder to get them financed when you go to sell them
Pros:Easy management, quicker turnover, less wear on unit
Cons:Special assessment, less appreciation or even depreciation, HOA changing rules, high investor or foreclosure ratio could lead to warrant issues thus pushing prices down, part of your property value is in the hands of othe, rising hoa fee
I actually like condos for the easy management. Of my 7 properties, 3 are condos.