Financing pitfall of a Condo
Los Angeles · Member since 2019 · 50 posts · 9 votes
Hi Everyone, I live in California and am considering buying a condo in Indianapolis with a cash offer as my first investment property. Should I anticipate any difficulty refinancing the house or getting a HELOC to take money out for my next investment property? I know a condo is different from a SFH, so is there anything I should be wary of in regards to using my equity in the condo to finance my next property?
Hi @Stephanie P. thank you for your response. I'm aware condos come with their own specific set of risks, but it seems like a deal that can be profitable for me.
I am a little wary for the HOA. the HOA fee is only $80 so not sure if that's good or bad, but there is no pool or major common areas to maintain so I think that's ok. If my offer is accepted, I'll definitely be digging through the HOA documents for any red flags.
I'm doing my own research and plan to talk to a lender, but maybe you can explain what makes a condo warrantable vs non-warrantable?
This deal was brought to me by a broker. The seller is going through a divorce and I believe only taking cash offers for an under market value price. The seller actually owns 13 units that he's selling and I heard another investor owns 10 units. I was told that the investor who owns 10 units wanted to buy more units but didn't have the money right now. What kind of issues can arise when a complex is owned by mainly investors and used as rental property?
My main concern is that I won't be able to pull my money out of the condo to purchase another property.
There are lots of reasons why condos are or become non-warrantable
and many more. I've attached an information sheet from Freddie Mac regarding condos. You could buy it today and next month change your mind and decide to sell and the game has changed because of something that's totally out of your control. If you have one person that owns 13 and another that owns 10, I would say it will end up being non-warrantable.
https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/condo.pdf
You may run into issues with non-warranted condos. If a condo complex has too many investor owned units or one individual owns too many, the complex could become non-warranted meaning Fannie, Freddie, and FHA would most likely not finance a unit in that complex.
Mark
Hi Everyone, I live in California and am considering buying a condo in Indianapolis with a cash offer as my first investment property. Should I anticipate any difficulty refinancing the house or getting a HELOC to take money out for my next investment property? I know a condo is different from a SFH, so is there anything I should be wary of in regards to using my equity in the condo to finance my next property?
Indy is a crazy place. Lots of opportunities if you know what you're doing, but you can get into problems if you buy in an area with high crime and blight.
I wouldn't layer risk with my first investment property.
Just some thoughts
Stephanie
Hi @Stephanie P. thank you for your response. I'm aware condos come with their own specific set of risks, but it seems like a deal that can be profitable for me.
I am a little wary for the HOA. the HOA fee is only $80 so not sure if that's good or bad, but there is no pool or major common areas to maintain so I think that's ok. If my offer is accepted, I'll definitely be digging through the HOA documents for any red flags.
I'm doing my own research and plan to talk to a lender, but maybe you can explain what makes a condo warrantable vs non-warrantable?
This deal was brought to me by a broker. The seller is going through a divorce and I believe only taking cash offers for an under market value price. The seller actually owns 13 units that he's selling and I heard another investor owns 10 units. I was told that the investor who owns 10 units wanted to buy more units but didn't have the money right now. What kind of issues can arise when a complex is owned by mainly investors and used as rental property?
My main concern is that I won't be able to pull my money out of the condo to purchase another property.
Hi @Stephanie P. thank you for your response. I'm aware condos come with their own specific set of risks, but it seems like a deal that can be profitable for me.
I am a little wary for the HOA. the HOA fee is only $80 so not sure if that's good or bad, but there is no pool or major common areas to maintain so I think that's ok. If my offer is accepted, I'll definitely be digging through the HOA documents for any red flags.
I'm doing my own research and plan to talk to a lender, but maybe you can explain what makes a condo warrantable vs non-warrantable?
This deal was brought to me by a broker. The seller is going through a divorce and I believe only taking cash offers for an under market value price. The seller actually owns 13 units that he's selling and I heard another investor owns 10 units. I was told that the investor who owns 10 units wanted to buy more units but didn't have the money right now. What kind of issues can arise when a complex is owned by mainly investors and used as rental property?
My main concern is that I won't be able to pull my money out of the condo to purchase another property.
There are lots of reasons why condos are or become non-warrantable
and many more. I've attached an information sheet from Freddie Mac regarding condos. You could buy it today and next month change your mind and decide to sell and the game has changed because of something that's totally out of your control. If you have one person that owns 13 and another that owns 10, I would say it will end up being non-warrantable.
https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/condo.pdf
Thank you again @Stephanie P. This is very helpful information. I will definitely need to find out the renter to owner-occupied ratio.
If the condo is unwarrantable, are there any other options available to pull my money out other than a refi? Do you think I'd be able to get a line of credit loan on the condo?
This may be a stupid question, but if you plan on pulling equity from the condo later, why not just get a mortgage/loan and use part of your money for a down payment? This leaves you with some money for your next investment.
@Mark De sagun
$80 HOA fee seems real low, don't know how many units there are but reserves may be under funded or they hit you with specials for things they should be reserving
Hi @Theresa Harris. It's an off market deal that is only taking cash offers.
Hi @Jack Halldin. Yes, I thought that was low for an HOA fee as well, but there's no pool or anything like that. I count 46 units, but I need to double check that number. I will definitely need to check how much the HOA has in reserves and what kind of special assessments they've had in the past couple years.
Thank you again @Stephanie P. This is very helpful information. I will definitely need to find out the renter to owner-occupied ratio.
If the condo is unwarrantable, are there any other options available to pull my money out other than a refi? Do you think I'd be able to get a line of credit loan on the condo?
Yes, there are other options, but not conventional. There are several lenders that do non-warrantable condos, most without income verification. The loans are more costly, but they close; usually around 70% loan to value for a refinance.