Why not buy a condo or is it crazy

13 Replies

My wife and I where considering getting back into real estate with buying a condo in Las Vegas. I heard from a Bigger Pockets podcast one of the guest say BP suggest not to buy a condo. I understand you cannot control the HOA fee and the old people who run the HOA. Are there other reasons we are missing on why not to buy a condo?

Everyone has their own reasons for why they invest in what they invest in. A lot of times depending on who it is you're talking to, you will hear people say condos are one of the first things to go down when the housing market goes down and one of the last things to recover. That being said I've seen some condos have an awesome rate of returns in neighborhoods with HOA compared to SFR in similar areas.

A lot of people prefer SFR over a condo in some situations because a family is usually always trying to upgrade to an SFR. Not too many families want to upgrade to a condo.

At the end of the day it's whatever you prefer and are comfortable with.

Most of the anti-condo sentiment is regarding the lack of certainty with the HOA. Assessments (additional fees imposed by the HOA) are real and happen often. This can eat into cashflow. With most LV properties, when you account for the association fees, increased tenant turnover, uncertainty due to HOA, and lackluster appreciation vs SFR, SFR's generally make better investments over long periods of time. This is why you probably hear this opinion often.

However, my personal thought is that the deal is senior to everything else. Any investment could make sense at the right price and terms. If there is a good opportunity to buy a condo and the cashflow works (even after factoring in possibility of assessments), I am not dogmatic. I think it would be foolish to be completely closed off to them.

One thing to check when buying a condo to mitigate this risk is the history of the association and financials. You can see in the CC&R's how often there have been assessments, what the reserves are, etc. It seems like a ton of complicated information, but it's really not. You can get a very good idea about how healthy an association is with a quick glance at their budget.

Let me know if you have any other questions. I'm a Realtor in LV and also invest here.

With a condo, you cede some control over to other people. It may not be a big deal or matter. You need to have a good idea of the history of assessments, how well the units have been maintained, if there's any possibility of the HOA barring rentals, etc. A lot of HOAs exist solely to keep prices as cheap as possible for the people who are living there, while the units fall into serious disrepair. Alternatively, some places are constantly jacking HOA fees because a few people who get control of the HOA want to live in the Taj Mahal.

@Dan Mumm Thanks for the information. Looking at the financials  and the assessments is a great idea. When we are ready to move forward I will contact you and see if you have anything.

Thanks

@Sam Shueh - I think most of the post have said they do not think it is a bad idea if you look at the financials and specifically the assessment history. It looks like they all agree with you. These posts are great as they give insight from your experience. I really appreciate it Sam. Thanks

When you say lower fees, what would you be referring too?

Below market HOA due.

In Vegas just about every newer residential neighborhood has HOA dues for SFHs. What are you getting? A club house, lots of public ground, paid trash, water usage? Some may charge $150 a month which is low while others can charge $1.5K+ a month for security, guards, gates. As long as it meet your requirements and cash flow I do not see why $150 is a threat. The great thing about landlord you do not worry about exterior, landscape the management handles it. That makes the landlord relatively easy to run an operation.

@Robert Fritsche

I live here in Las Vegas and work part time as a Realtor, a couple pieces of advice I would give with Condos or any HOA for that matter is to read the CC and Rs before purchasing. A lot of HOA's here have bylaws that cap rentals meaning they only allow a certain number of rentals in their communities. The other thing would be to look up the HOA and see what people are saying about it. The ones that are great are really great but the ones that are bad are really bad. There doesn't really appear to be a gray area here. That being said with a little homework condos can be great cash flow opportunities.

@Robert Fritsche Unpredictable HOA fees are one of the reasons people stay away from condos. Another is because it's hard to evaluate the financial strength of an HOA and therefore hard to predict wether fees will be stable or repairs and maintenance performed. Additionally a lot of HOAs have strict rental caps and a lot of time people wind up buying thinking they can rent it out and then they can't. I've always felt that condos are a good investment after a market crash when there is a huge glut of new construction on the market and developers start giving them away. Beyond that they are hard to get good cash flow on and tend to be a more volatile investment than SFH.

There are plenty of other things to consider as potential negatives or at least evaluation points:

1. Is the community eligible for FHA, VA, and Fannie Mae financing. This can impact your ability to sell later and the potential for appreciation.

2.  Age, condition, and type of mechanicals.  Do the units have individual plumbing shut offs?

3.  Are there a ton of apartment buildings being constructed around this condo complex?

4.  What's the parking situation look like?  Are there enough spaces close to the unit you're going to buy?

The list goes on and on.  That said, I'm not saying don't buy condos.  I've helped clients buy several this year as both investments and places to live.