Pros and Cons of purchasing Condos for Rentals

5 Replies

I live on the coast of California and the price of real estate is extremely high. Finding deals to build a portfolio is tough. I recently owned two rentals but sold them and am now looking for other opportunities. There are some cheaper condos that are going on the market (below $200K) that would produce really good cash flow. For those of you who have rented condos what are the benefits and drawbacks of doing so? 

According to the calculator on here, I can get a 10% ROI per year on each condo I buy and rent.

I think it depends on the numbers, and the numbers depend on location. I have a Condo in VA, a block from the metro and two stops from DCA. never been vacant (well once, due to lousy property management). now there's a whole foods a block way. it has covered parking in an area very crowded even for street parking.

so for me key things to look for are Location, HOA, and HOA fees, and parking situation.

The big thing with condos are the HOA fees and the viability of the HOA. If all the roofs need to be replaced, you (and your neighbors) can have a special assessment done and you need to pay $xx thousand into replacing everyone’ roofs.

Unfortunately, you don’t have a lot of control over how well the HOA finances are managed and can get blindsided.

If you're a cash buyer, then a condo could be a good option. If you're financing, then the COA fee and the mortgage will wipe out a lot of your cash flow.

The upside is that the association is responsible for the exterior of the building. A good association will plan for necessary maintenance and repairs and try to keep any additional assessments to a reasonable level. Your insurance will also be a lot lower because you're only insuring the space between the walls.

The downside is that if the association is bad, then the building could be left to fall apart, and then you'll have a huge assessment for major repairs when they can no longer be ignored. 

Chuck, we have a number of rental condos. What I like about buying distressed units is the foreclosed unit owners abuse rarely effects anything structurally, in some cases it has no effect on the mechanicals either. I've been really lucky with condo boards, actually joined one to limit their stupidity. Another association I belong to, Ive assisted with property tax appeals, connecting association with a capable law firm. The main thing with associations is you don't buy into one that is too broke, ideally your reviewing some financial data before offering, not always practical though. Condo buying favors cash buyers more than other properties, for a variety of reasons.