Owning just individual condos

5 Replies

@Andrzej Slugocki

My first properties were condos, and they saved me a ton of heartache when I didn't know what I was doing.

Why?

Condo HOAs cover lots of capital expenses that I wouldn't have thought about as a first-time investor in a SFR or small multifamily.

Condos have some downfalls:

1) Terminal Value - The terminal value (or future sale price) on a condo will be closely related to the surrounding condos. You can't implement an elaborate renovation and expect a large "above comparable" sale price

2) HOA Rules - Homeowner associations have rules that might restrict how you use and lease the property. Some HOAs restrict rentals to a certain number of condos in the community. Others have rules about the type of renovations or changes you can make to the unit.

Several of my clients own individual condos as investments. It only really works if purchased for cash, the HOA fee is value added, and the return is that of an annuity. In each case, the clients invested in areas where the tenants were primarily medical or law students in the city/urban area; the square footage is small which contains rehab costs and the draw is location and amenities. I recommend it in areas where tenant quality is high, year-over-year rent increases are commonplace (like in South Tampa), its a cash purchase, and limited management oversight is needed/desired. Too many investors are quick to rule this property type out before considering the fit in a well-diversified portfolio. Hope this helps...

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The biggest thing you need to watch out for is special assessments. Make sure there are no huge CapX projects they are planning to assess the owners for.