Why you should or shouldn’t invest in a luxury condo?

Question

Would you buy a condo as a rental investment in an area you really like (close to home), where there’s high prices per square foot, expensive HOA and high taxes but the rent is also high, expecting to get around 8% cash flow or would you look at something else without HOA and less expensive overall ?

Russell Brazil · Answer

I have a few clients who only invest in high end luxury condos.

Here is the important thing to keep in mind in real estate investing.....there is no right or wrong strategy, there is no good or bad investment. There are your goals, there is your risk tolerance, there is the risk of the asset, there is the risk of the market.

Buy what fits your goals and fits your risk tolerance.

Taylor L. · Answer

The biggest concern with high end properties is their recession resistance. When hard times come, luxury tenants are likely to tighten their belts and move to lower cost properties. Why shouldn't they? That's the advantage of being a renter - mobility. That can result in lower rents and higher vacancy in those luxury properties.

How big of a haircut to your gross rents can you afford with this property?

The other potential issue is with the HOA. They can decide to restrict the number of rentals any time they choose, if they haven't already.

Does your cash flow figure include maintenance?

To be honest, I'd keep looking. Have you considered multifamilies? Out of state investments? Syndications?

Allan Ginsburg · Answer

@Russell Brazil thanks for the advice, I believe it could be good to have diverse kinds of properties in your portfolio but this would be my first buy, I’m not sure if it’s a good idea to start with luxury condos.

Allan Ginsburg · Answer

@Taylor L. The properties I’ve seen have dropped their price in the last months (both in rent and buy), my biggest concerns are the restriction the HOA could have in the future and the fact that the fee could go up any time, but on the other hand having that fee let’s you know that the building will be well maintained.

Why you should or shouldn’t invest in a luxury condo?

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