Condo as investment?

11 Replies

I have found a 2/2 condo listed for 65,000 which I was thinking of offering 50k. The payment should be around $360/month (10k down) plus $116 in HOA fees. There is a similar unit for rent now for $800/month. This would be my first deal. Is there anything I should be wary of with condo deals as investments? Or anything else that doesn't look right here?

What kind of shape is the complex in? 

Make sure to look into the financials of the HOA so you don't get surprised with a special assessment.

Can you find more than just the one comp? How long was that one the market? Are there other available listings that you'll be competing against? I would check MLS, Craigslist, and other rental sites that are popular in your area. Even if there's a comp at $800 but right now there are three other similar listings and on average only one leases per month then you might have to lower your rent and/or it might take a couple months to lease it.

Does $360/mo include property taxes and insurance?

That should be a good start for you :)

@Ashley Lewis

What @David Shapiro has just laid out for you is definitely a great starting point. I want to just follow up and say that finding out as much information as possible regarding the HOA would be beneficial. How old is the community and has there been any recent updates such as roofs, walkways, siding, etc. Is the community under a property management group? If so, for how long and has it been a beneficial to the community? Are there lots of rental units in the community? Does the HOA allow rental units? What are the bylaws of the community?

Some of these might be easy to find out such as asking the listing agent or the HOA and some might be a little more complicated and require you to do the leg work. Best of luck!

Thank you both so much! I am starting to think the condo is not the way to go. I have found some other single family type opportunities that make more sense potentially. I will definitely be looking into the aspects you mentioned, if I consider further. Thanks again!

@Ashley Lewis 1.) Do you have financing lined up for a $40K loan? A lot of lender steer away from those tiny loans. The juice ain’t worth the squeeze.

2.) With low-dollar properties like these you can end up with a ton of “we bought to rent this” and if it ticks over 50% you often take a value it (it hurts financing for future owner-occupants).

3.) Really, you never know what an HOA will do (good or bad). It’s someone else with a degree of control over your investment. Only you can decide if you’re comfortable with that.

Thanks, Andrew! Yeah that seems to confirm my shifting opinion. I am beginning to think this condo is not the best of ideas. Better to discover that now! Thanks again! 

Financing a condo will typically give you a slightly higher interest rate and I’m not a fan of HOAs

Make sure the condo rules allow you to rent out the condo.  

Condos have their pros and cons.

The cons have have been listed by the contributors above, I would like to list the pros. 

Pros:

1) Cheaper. For the price of one SFH, you can buy 2 or more condos.

2) Lower maintenance. In most condos, the majority of the big ticket items are taken care of by HOA, such as structure, roof, landscaping, gates, security etc. Also if the electrical or plumbing issues happen outside of few feet of your unit, then its not your responsibility and HOA reimburses you the cost.

3) Better amenities. Some condo complexes provide amenities like swimming pools, gyms etc. They can do that because the cost is shared between all the units of condo complex. A single residence can't afford those amenities.

So condos are not all bad as investments. They have their own set of benefits that make them good investments, provided you do due diligence when buying a condo as investment.

P.S I have 2 condos as investments.

The $116 condo association fee sounds really low to me. That makes me think they're not doing a good job maintaining the property. And you are at the mercy of the association regarding upkeep of the property.

thanks all! Those are some great points. I am looking more into single family homes now. 

@Ashley Lewis - An investor friend of mine owns two condos that he rents out. Last year he was hit with a $7,500 per unit HOA assessment to redo the siding. You definitely still want to factor in some capital expenses even though condos generally don't have any just to be safe for situations like that. Those things (new siding, roof, etc) will generally add value to the condo units - so that's a plus. Just make sure you have good cashflow so that you can take a hit like that better if it happens!

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