Does buying condo ruin my chances to continue househacing

[Gino Tomba]

Does buying a condo as my third property make sense?

Currently own two duplexes and live in one unit. I bought both of them with primary housing down payments.

Renting out 3 units and living in one nets me about even for a $0 housing expense between rental income and minus mortgages and paying utility bills that in my area are required to be paid by me.

My plan was to get a third duplex this year and move into that for minimum down, but I don't think lending laws will allow it for a third time. First was conventional, second is FHA. If anyone has more details please share this is probably the biggest unknown to me right now and is pivotal in my decision!

My new idea was to buy a single family and live in it for a year and net $100-200 in profit/month once renting it out and move on hopefully to a duplex again. I'm trying to move and call each home my primary as many times as I can for minimum down payments. Following the rules and living in them for at least a year.

All in, thia highrise condo costs about $1,500/month between PITI/PMI and HOA ($508). My current unit I am living in will make me about $900 so my housing expense would go from $0 to around $600 with this move. Same thing even if I bought a single family.

This condo is being offered to me for $106k and valued at $113k so this is why I am interested as its a bit of a deal. It's in a very sought after part of a very sought after city in my area. There is some emotion in this deal as I would be excited to live in a nicer more fun area and closer to friends (one who lives in the same building) and it has amenities I would certainly take advantage of, but I still want to make sure I am being smart. After a year if I want to rent it out I can rent it for the same or a little bit more than the PITI and HOA costs.

I compared it to buying a single family home around me that would cost $50k more and would be about $100 less between PITI and utilities I would have to pay and probably rent out for about the same amount as the condo or if anything, a bit less

Is this a horrible idea? In my mind even if I break even on the condo if I decide to rent it, someone is pumping equity into the home for me and I never have to worry about large expenses like a roof, furnace, driveway, hot water tank, etc.

Thoughts?

[Benjamin Aaker]

Hi Gino,
You should talk with your banker (or a few bankers) and ask about what type of loan you can do. You can move out of your duplex, but it could trigger the bank to call your entire loan due, which could cause you a big headache. The bank is scrutinized by the government on these loans, not you, so they will know the details of what you can and can't do.
I'm glad you are thinking about equity over cash flow. I'm usually happy making $0 cash flow on a property when I am building equity fast. Take a look at your current properties and see what you have in equity right now. You might be able to pull out some cash with a line of credit and even avoid going to the bank for a mortgage on your next project.
The condo isn't a horrible idea if you really want to live there. If so, you should look at it as a place to live and not a business venture. Condos generally don't appreciate as well and have a few headaches with HOAs that you don't always have with a house. Business-wise, I'd avoid the condo. That being said, I own one in Florida as a short term rental. It has huge equity but very little cash flow. I use it as a second-home some of the year, so there's the emotional part for you.

[Theresa Harris]

The HOA fees will kill you in the long run especially $508 a month. Run the numbers and think where you will be 5 and 10 years down the road. Single family generally go up faster in price. When I bought a rental last year I did the same thing as you-do I bought a higher end townhouse with condo fees or a single family. Running the numbers, the cash flow was similar, but I realized that every month over $200 of the rent was going to the HOA whereas with the house, it was going to my mortgage payments. I also didn't have to worry about tenants sharing walls with neighbours or condo boards. In the end I went with the house. It was a bit more ($270K vs $250K), but for me it was a better move.

[Sergey A. Petrov]

Go for it. Sounds like you are at a point where you’ve made a bunch of smart decisions and choices and now want to reward yourself with a condo just for you to enjoy. Worth it.

make sure you do your due diligence on the condo. Make sure you can rent it at some point (some prohibit rentals, some have rental caps, etc). A big chunk of your $508/mo "HOA" likes goes to insurance, water, sewer, garbage, maybe some other utilities and short term and hopefully long term maintenance (check their reserve funding). These are expenses you'd no longer pay directly with a duplex or a single family home. And if the roof needs be replaced, it'll be paid for out of reserves vs your own pockets. Again, check reserve funding otherwise you'll end up with a special assessment for that roof

I am a pro at condos and live in that world professionally. Condos are awesome and make perfect investment sense if you know how to vet the association and then stay involved.

From a long term perspective, the"HOA fees" balance out or end up even lower when compared to expenses you would've incurred on a duplex due to economy of scale - X number of units pay for one roof vs two units paying for a roof in a duplex. Of course we've all heard of improperly run associations- that is where the bad rep comes from. Vet your association!