When does it make sense to invest in a condo?

Buying & Selling Real Estate
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When does it make sense to invest in a condo?

Nick Brubaker
Decatur, GA · Member since 2015 · 419 posts · 52 votes

Hello all!

My wife and I are in somewhat of a uniques situation and we are trying to decide if purchasing a condo makes the most financial sense:

We recently moved back to the Atlanta / Decatur area after 5.5 years in Japan. We are between employment and staying with my parents - and in a hurry to move out and live on our own again. Not having steady income will make obtaining a loan at a good rate quite difficult, particularly with our time frame. Fortunately we do have about 100,000 available to put toward both investments and our own property (if buying does in fact make the most sense at this point).

We're trying to make the best financial decision. If we spend the entire 100,000 on the property we ourselves will live in than we would want it to be a multifamily or for the layout to be conducive to additional tenants/renters. Another strategy would be to aim to spend half that on a property for ourselves alone (just came from Tokyo and are used to small units) and invest the other half separately.

Anyway, there are plenty of SFH's for around 50,000 in and around Atlanta, but they are hard to find in areas where we would be comfortable enough living. There are condos available in the same price range in much better areas. The issue is that the condos we are looking at have monthly HOA fees of $250 (not including utilities) and rental restrictions (15% of total units) with long waiting lists. We are trying to crunch the numbers on these condos like we would a detached SFH and even add in the total HOA fees for the two years we would plan to live their as if these fees were any other rehab expense, as a way of comparing this option with the straight out SFH option. I am also doing my best to compare these options to simply renting.

Anyway, I am very interested in hearing the insights, opinions, and experiences of other BP members about whether or not condos can make better financial sense for a first-time homebuyer/investor looking for a low-cost property for themselves. I realize that a lot will depend on the specifics of the situation - I am happy to provide more details.  

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Mike F.
Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
10y

All I buy is townhomes (not condos), every property has an HOA fee. That fee isn't just worthless, it pays someone else to do all the maintenance to the exterior, painting, roofing etc... it also pays for cutting of the grass and snow removal and trash pickup. With townhomes / condos you are only dealing with the interior. Many complexes have pools and club houses, work out rooms etc...

I do extremely well with all my rentals, and enjoy nice appreciation and I spend none of my time managing anything to do with the exteriors. These types of rentals make sense if you want to spend a minimal amount of time dealing with your properties.  They are cheaper to purchase and the rent like crazy.

PS - you want the properties that are managed well, the ones who aren't hitting owners with assessments for big repairs. The good ones are budgeting year after year through part of your HOA fee for big items like roofs, painting, parking lot repaves, the new roof 12 years down the road should be being paid for by setting aside part of the HOA fee every month, not a special assessment as if the HOA didn't know that a roof eventually has to be repaired.

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  • Dan Baker
    Invester/ wellness coach. · Akiruno Shi, Tōkyō-to · Member since 2015 · 100 posts · 9 votes
    10y
    I wouldn't recommend it, association fees can increase for various reasons, and kills your cash flow if you ever decide to move out. The condo was my first investment, and I made a killing on it, but these were during the 2003 bubble years. Basically what I did was house hack and rent out the spare bedroom's to college/exchange students. If I decided to rent it it would have had a negative cash flow. Instead I decided to 1031 exchange it and upgrade to a better property.
    0Reply
  • Jacqueline Carrington
    Investor · Corona, CA · Member since 2014 · 746 posts · 372 votes
    10y

    My husband and I spent $111k on the condo we currently live in and while happy to have something that we own, it was not good investment-wise. We should have bought a multifamily and lived in one of the units. Oh well, can't change the past.

    HOA fees definitely kills any cash flow you may have.

    I would not recommend it and would not do it again if we could do it over. I'd definitely recommend a SFH if you are just looking for somewhere to live or a multi if you are looking to invest. After you get your investment cash flowing, then buy a house for you to live.

    1Reply
  • Dan Baker
    Invester/ wellness coach. · Akiruno Shi, Tōkyō-to · Member since 2015 · 100 posts · 9 votes
    10y
    Besides its never good to be in a hurry to buy for emotional reasons, only for great deals. I've been in a situation much like yours. I decided to fix my circumstances first, then go hunting. Be patient and methodical, everything will work itself you in the end.
    0Reply
  • Nick Brubaker
    OP
    Decatur, GA · Member since 2015 · 419 posts · 52 votes
    10y
    Originally posted by @Dan Baker:

    I wouldn't recommend it, association fees can increase for various reasons, and kills your cash flow if you ever decide to move out. The condo was my first investment, and I made a killing on it, but these were during the 2003 bubble years. Basically what I did was house hack and rent out the spare bedroom's to college/exchange students. If I decided to rent it it would have had a negative cash flow. Instead I decided to 1031 exchange it and upgrade to a better property.

    Thanks for the advice Dan.  It's good to hear from you!

    0Reply
  • Nick Brubaker
    OP
    Decatur, GA · Member since 2015 · 419 posts · 52 votes
    10y
    Originally posted by @Dan Baker:

    Besides its never good to be in a hurry to buy for emotional reasons, only for great deals. I've been in a situation much like yours. I decided to fix my circumstances first, then go hunting. Be patient and methodical, everything will work itself you in the end.

     This is great advice and maybe another argument to rent for a little while.  

    0Reply
  • Dan Baker
    Invester/ wellness coach. · Akiruno Shi, Tōkyō-to · Member since 2015 · 100 posts · 9 votes
    10y
    That's what I was basically trying to say, live cheep and get settled, shop for deals, and you'll be good. I'm looking forward to seeing your future. Make sure you keep in touch dude.
    0Reply
  • Holden Latimer
    Investor · Salt Lake City, UT · Member since 2014 · 68 posts · 25 votes
    10y

    @Nick Brubaker

    Glad to hear you guys found a location to settle down. Hopefully one day I can make a trip out to your market. Hit me up if you would like any help analyzing a deal!

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y

    All I buy is townhomes (not condos), every property has an HOA fee. That fee isn't just worthless, it pays someone else to do all the maintenance to the exterior, painting, roofing etc... it also pays for cutting of the grass and snow removal and trash pickup. With townhomes / condos you are only dealing with the interior. Many complexes have pools and club houses, work out rooms etc...

    I do extremely well with all my rentals, and enjoy nice appreciation and I spend none of my time managing anything to do with the exteriors. These types of rentals make sense if you want to spend a minimal amount of time dealing with your properties.  They are cheaper to purchase and the rent like crazy.

    PS - you want the properties that are managed well, the ones who aren't hitting owners with assessments for big repairs. The good ones are budgeting year after year through part of your HOA fee for big items like roofs, painting, parking lot repaves, the new roof 12 years down the road should be being paid for by setting aside part of the HOA fee every month, not a special assessment as if the HOA didn't know that a roof eventually has to be repaired.

    3Reply
  • Jimmy Mills
    Landlord and Investor · Houston, TX · Member since 2016 · 21 posts · 5 votes
    10y

    If you've already bought a condo, you can, as one person suggested, rent the rooms. I've had great cash flow with room rentals to professionals like teachers, nurses, recent divorcees (hey, it happens..) But I wouldn't recommend buying a property that only cash flows with some creative circumstance like room rentals. It can help bring you out of an already executed bad deal though. Cheer.

    0Reply
  • Jimmy Mills
    Landlord and Investor · Houston, TX · Member since 2016 · 21 posts · 5 votes
    10y
    Originally posted by @Mike F.:

    All I buy is townhomes (not condos), every property has an HOA fee. That fee isn't just worthless, it pays someone else to do all the maintenance to the exterior, painting, roofing etc... it also pays for cutting of the grass and snow removal and trash pickup. With townhomes / condos you are only dealing with the interior. Many complexes have pools and club houses, work out rooms etc...

    I do extremely well with all my rentals, and enjoy nice appreciation and I spend none of my time managing anything to do with the exteriors. These types of rentals make sense if you want to spend a minimal amount of time dealing with your properties.  They are cheaper to purchase and the rent like crazy.

    Good points and I do have one townhouse that cashflows. THe HOA is only 109/month. One argument that some investors make is that you can't do as much to force appreciation with a condo as you can with a detached. You can't add a garage, paint, change exterior, etc. My townhouse is well maintained. Other communities refuse to paint and make repairs and you can't help that.

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y

    Very true Jimmy.

    Townhomes have a bit more flexibility than condos in regard to adding value. You have the possibility of unfinished basements that can be finished adding bathrooms and bedrooms to increase value, but anything exterior like you said wouldn't typically be on the table. Parking is typically going to be what it is, if there is no garage you can't really build one. You can on the other hand sometimes add a garage by buying one. In one unit people owned their detached garages separately so sometimes (rarely) you would find somebody selling a garage. We bought a unit without garages and eventually bought one for it. But that situation is not typical.

    0Reply
  • Nick Brubaker
    OP
    Decatur, GA · Member since 2015 · 419 posts · 52 votes
    10y
    Originally posted by @Mike F.:

    All I buy is townhomes (not condos), every property has an HOA fee. That fee isn't just worthless, it pays someone else to do all the maintenance to the exterior, painting, roofing etc... it also pays for cutting of the grass and snow removal and trash pickup. With townhomes / condos you are only dealing with the interior. Many complexes have pools and club houses, work out rooms etc...

    I do extremely well with all my rentals, and enjoy nice appreciation and I spend none of my time managing anything to do with the exteriors. These types of rentals make sense if you want to spend a minimal amount of time dealing with your properties.  They are cheaper to purchase and the rent like crazy.

    PS - you want the properties that are managed well, the ones who aren't hitting owners with assessments for big repairs. The good ones are budgeting year after year through part of your HOA fee for big items like roofs, painting, parking lot repaves, the new roof 12 years down the road should be being paid for by setting aside part of the HOA fee every month, not a special assessment as if the HOA didn't know that a roof eventually has to be repaired.

    Thanks for this Mike.  I think you make some good points.  The couple condos that I have checked out have rental restrictions (15%) which is a shame.  I'm not sure how long it can take to get to the top of the waiting lists, but even then you need board approval.  

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