Condo investments: good or bad?

Question

Hello,

I just finished reading a book called "Millionaire by 28" by Todd Babbitt. The author achieved this feat by buying up 50 small condos located in the downtown area of DC. Although he didn't achieve great cash flow from these properties, he built equity in each of them and collectively sold them at a later time.

What do you guys think of this strategy? I understand the "boom" was a big reason for his profits, but what about condos in general? He specifically mentions not to invest in suburban condos, only ones that have excellent locations.

As an investor starting out, the low prices of condos do intrigue me. For the price of one 3 family, I could buy multiple condos in the $50-$60G range.

What do you guys think? Is it even possible to achieve positive cash flow from condos?

Any insight is appeciated.

Troy Sheets · Answer

Another consideration, how many units are rented and how many OO? How many can be rented at once? Some buildings only allow X amount of units to be rented to keep it more than half OO. You could be on a waiting list to be allowed to rent your unit. If the building goes rental, it could not qualify for FHA financing. As mentioned, assessments could get dropped on the owners if the building is underfunded, etc. Cost of HOA fees can certainly eat into your cash flow as well and they can increase.

I rented a condo for 5 years in a great location. When I first moved in, before the economy took a dump, the condo fees included 12 hour a day shuttle service in a big loop through the city every hour 7 days a week. Two doormen on duty at all times 24/7 that worked for the building, not a security company as well as the shuttle drivers were building employees. Condo fees included gas, water and cable.

By the time we left, the shuttle was only running 3 hours in the morning and 3 in the afternoon M-F only, no weekends and they had contracted out the bus and driver (poor service). Doormen were down to one per shift and they only worked two shifts, no overnight and they were low paid contractors. We had to pay for cable and gas and they were working to meter the water.

I attribute that to mismanagement, deferred maintenance on the exterior that became a hue expense at the same time people were walking away from their  condos (and fees) because they were underwater in their mortgages.

Beware...

Michael B. · Answer

There are a number of threads that ask this question. Search and you'll find several that address this question pretty well.

Short version -- a majority of the posters don't really care for condo investments. HOA fees are troublesome and the HOA can be a real problem.

A good sized minority -- including myself -- think that condo investments are one of the best real estate investments going right now. The purchase price is lower than a comparable house, the rent is potentially a larger % of the purchase price than a house. Also the economies of scale available for amenities like pools, professional landscaping, and professional building maintenance make them ideal.

But each person has to figure that out for themselves. What some see as HOA petty rule enforcement I see as an effort to address quality of life issues. To each his own.

Ben R. · Answer

You can get a killer deal on some condo units but be careful that you are not the only owner in the building paying HOA dues. That beautiful swimming pool won't stay pretty on your one unit HOA payment. Find out if there is an owner-occupied/tenant rift at the property and find out how the HOA views investors. Make sure dues are paid up by all the owners and try to find out if there is an assessment coming down the pipe. If you can buy the whole complex out you might have a goldmine.....$.02...not a lawyer or financial advisor....stayed at Holiday Inn Express a few weeks ago...