Would You buy a Condo and rent it?
Member since 2022 · 3 posts · 3 votes
Would You buy a Condo and rent it?
Most Popular Reply
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
3yIt blows my mind that people talk about HOA Dues and Special Assessments like they do.
"I'd never buy a condo. What if there is a... SPECIAL ASSESSMENT!!! (dun, dun, dun, duuuun)." As if owning a SFR magically makes you immune to sudden large costs.
Or, "I'd never buy a condo. The HOA dues will only go up!" I can only guess that these people live in some bizarro world where things like maintenance and repairs get cheaper each year with SFR.
Dues pay for things like insurance, landscaping, pool guy, water, etc. Splitting this cost among all homeowners is usually cheaper for you than paying individually. And it's not like if you owned a SFR you wouldn't have these costs.
And special assessments usually pay for large projects. I'd much rather split the cost of a sewer replacement with 50 other homeowners than all by myself for a SFR.
The key to owning a condo is whether it has a well run HOA. If they are, it can be awesome. If not, it can be hell.
31 Replies
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I have. Things to keep in mind: condos can change their rules and may not allow rentals, HOA/condo fees can add up quickly and you need to make sure your tenants know and follow the bylaws.
As for appreciation, it really depends on the area and the market.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
No I wouldn't.
I don't want to be at the mercy of the HOA's fees and rules which can change.
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
Absolutely not! I do not want anything between me and the tenants!
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3yAloha,
When calculating your ROI, you need to understand not only your operating costs and potential future capex requirements, but also those of the HOA. If the Board is not fulfilling their duty as a fiduciary to all of the owners by not properly maintaining, protecting, and preserving the common and limited common elements, you will have unexpected maintenance fee increases or special assessments to "catch up" with long deferred maintenance. You can get a feel for this by studying the most recent HOA operating budget and reserve funding plan. If you see a full funding number "shortage", divide that by the number of total units in the HOA to determine your estimated share, based on their calculations. Essentially, subtract your estimated share of the shortage, from what you thought your condo was worth.
I always recommend clients that own condos to participate (at least periodically) in the regular monthly HOA Board meetings (or better yet, run for a seat on the Board), and educate themselves on how condos are supposed to operate by joining a local chapter of the Community Association Institute and making use of their resources, including seminars on key topics such as budget and finance, contracts, insurance, and many other relevant topics.
A single unit in a well and fairly run HOA can certainly appreciate as much or more than a single family home, depending on local market. - 3yJacob SloopBusiness MemberRental Property Investor · Virginia Beach, VA · Member since 2020 · 274 posts · 111 votes
Appreciation is entirely based on that specific property , nothing to do whether it’s a condo, SF etc.
The point, that’s already been made, is the association . They can raise association dues , call for special assessments , to let’s say replace all the roofs and for that reason they make unpredictable assets . I own one that recently experienced a 50 dollar monthly raise in associations dues …. Nothing you can do about it, even if the board is mid managing / over paying for services ..
That being said, they can be good assets but shouldn’t be the first choice
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
I would not. The value of a condo is highly dependent on the HOA and how well it operates or maintains the property. You are also at the mercy of neighbors. I regularly see investors complaining about problems with neighbors that they can't control. It's often a water leak from an adjacent unit that damages the rental but the neighbor owner refuses to take responsibility. You can also expect HOA fees will go up, possibly at a rate that makes the property no longer cash flow.
The DIY Landlord Book4.7248 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @Edwin Lopez:
Hello everyone!
I need advice, would you buy a condo and rent it out? My numbers are good as far as ROI. However do condos also have equity that rise like a single family home?
Yes. I have several condos in our portfolio, just understand the HOA and potential for increased fees. While they do increase not having to find people to repair exterior items and having them basically maintenance free is a wonderful feeling
7e investments53 Reviews - Forsyth, GA · Member since 2018 · 25 posts · 30 votes3y
I would not recommend it. The HOA determines when special assessments need to be made for exterior maintenance or common area maintenance. I owned one from 2020 until October of this year. During the 2 years, I received several surprise assessments that had to be paid relatively quickly- One was an assessment for my portion of the roof and another was an assessment for pressure washing. In both cases I felt the amount was high for my tiny 1 bedroom condo, but unless you're on the board you have no input into which companies are hired to perform the work. Keep in mind that these assessments were ON TOP of already very high monthly HOA fees. In my case, I purchased the condo in August of 2020 for $37,500 from a wholesaler. I sold the condo in October of this year for $108K so the numbers ultimately worked in my favor, but had I purchased at the wrong price and had higher special assessments been passed during my time of ownership, I could have very easily been in the red on that deal.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
I wouldn't they are not in as high demand as single family and do not appreciate as well. They typically have HOA fees that you can just consider interest payments, and your lending options shrink
- Investor · Member since 2021 · 65 posts · 33 votes3y
My condo has been an amazing investment. Value has doubled and high returns but it's a very small association. 3 retail ground level units and 3 residences above it. All of which are used as STR's so it made sense. I also became the HOA President to help make sure it stays that way lol. Make sure you read the HOA docs and what it states about rentals. Bigger associations obviously might be more difficult to deal with/navigate.
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Edwin Lopez
I’d stay away from condos. Especially if they’re over 20 years old. Those random special assessment fees will kill you on older condos.
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3y
Quote from @John Morgan:
@Edwin Lopez
I’d stay away from condos. Especially if they’re over 20 years old. Those random special assessment fees will kill you on older condos.
For the most part, while those assessments may seem random, they are generally very easy to see coming if you read the annual budget documents that every owner receives, and learn to understand them, particularly with regard to their reserve funding plan. Are there exceptions due to sudden, unforeseen occurrences? Certainly, usually due to Mother Nature or serious carelessness on the part of a human. Those should be covered by insurance, but can result in costs to the HOA.
While age can be a contributing factor, especially if the Board has not adhered to their fiduciary duty, there are plenty of "New" condo projects that, by the second year, discover the Developer's budget and reserve funding plan was woefully inadequate. They fudge the numbers to keep the maintenance fee attractive so they can sell out all the units in reasonable time.
Older projects are much easier to effectively evaluate, because you can usually see where maintenance is lacking, and compare your observations with what the reserve funding plan tells you. New projects, no one knows what elements are poor quality, inadequate, or perhaps not even included IN the funding plan!
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes3y
It blows my mind that people talk about HOA Dues and Special Assessments like they do.
"I'd never buy a condo. What if there is a... SPECIAL ASSESSMENT!!! (dun, dun, dun, duuuun)." As if owning a SFR magically makes you immune to sudden large costs.
Or, "I'd never buy a condo. The HOA dues will only go up!" I can only guess that these people live in some bizarro world where things like maintenance and repairs get cheaper each year with SFR.
Dues pay for things like insurance, landscaping, pool guy, water, etc. Splitting this cost among all homeowners is usually cheaper for you than paying individually. And it's not like if you owned a SFR you wouldn't have these costs.
And special assessments usually pay for large projects. I'd much rather split the cost of a sewer replacement with 50 other homeowners than all by myself for a SFR.
The key to owning a condo is whether it has a well run HOA. If they are, it can be awesome. If not, it can be hell.
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3y
Quote from @Greg M.:
It blows my mind that people talk about HOA Dues and Special Assessments like they do.
"I'd never buy a condo. What if there is a... SPECIAL ASSESSMENT!!! (dun, dun, dun, duuuun)." As if owning a SFR magically makes you immune to sudden large costs.
Or, "I'd never buy a condo. The HOA dues will only go up!" I can only guess that these people live in some bizarro world where things like maintenance and repairs get cheaper each year with SFR.
Dues pay for things like insurance, landscaping, pool guy, water, etc. Splitting this cost among all homeowners is usually cheaper for you than paying individually. And it's not like if you owned a SFR you wouldn't have these costs.
And special assessments usually pay for large projects. I'd much rather split the cost of a sewer replacement with 50 other homeowners than all by myself for a SFR.
The key to owning a condo is whether it has a well run HOA. If they are, it can be awesome. If not, it can be hell.
All true...the problem is that with your own SFR, you can see, and are responsible for, 100% of repairs and maintenance. With HOA's, buyers ASSUME their Board (or, erroneously, the "management" company) is looking out for them, and they ignore all of the evidence as it increases each year with obvious deterioration and neglect, and with larger long term shortages in the reserve funding plan. I would wager not 2 out of 10 owners ever look at the annual financial reports and funding plan, much less actually understand what they are telling them. I blame part of the problem on the Real Estate Professionals that simply fail to educate their Buyer Clients, and part on Buyers that read none of their documents (or ask questions about them), again "assuming" if their Agent is putting it in from of them to sign, everything must be ok.
- Realtor · Palm Desert, CA · Member since 2021 · 1 post · 2 votes3y
@Edwin Lopez I have a condo here in Palm Desert for 30+ day rentals and it’s been a breeze! Unfortunately the hoa fee is jumping a decent amount in the new year, but I think I can raise rates next year after some slight renovations👍
- Member since 2019 · 7k+ posts · 4k+ votes3y
Yeah, I owned a condo for over a decade and love it. Will I LTR a condo ? yes ; Will I STR a condo ? sometimes that's the only choice.
I like HOA because they know what they're doing. Insurance is also much cheaper compare to SF. - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
I bought a condo as a primary residence with the intention of living in it for about 4 to 5 years then renting it out. It was in a good location for commuters, close to shops and restaurants and great walk score. This was going to be my method of acquiring more property in California. I just sold less it than 6 months ago. The HOA fee went up 3 times in the 2.5 years I lived there on top of special assessment to repair an old elevator (not replace it with a new elevator which probably would have cost more). I went to most of the HOA board meetings. There were constant complaints about how our HOA dues were going up and where the money was going along with security concerns with mail and package theft. I think residents were stealing other residents' packages or allowing their thief friends in the building.
I'm taking the little proceeds I got from the sale (almost like did a really bad flip that lasted 2 years since I did renovate the kitchen) and buying SFH or duplex in the Midwest for a future rental. I also feel that SFHs hold their value the most - I had realtors, wholesalers and investors calling/texting me constantly over the past 3 years asking to buy my SFHs in the Midwest and in California. No one had offers lined up asking to buy my condo. Good luck with your next purchase! And Happy New Year!
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
Quote from @Greg M.:
It blows my mind that people talk about HOA Dues and Special Assessments like they do.
"I'd never buy a condo. What if there is a... SPECIAL ASSESSMENT!!! (dun, dun, dun, duuuun)." As if owning a SFR magically makes you immune to sudden large costs.
Or, "I'd never buy a condo. The HOA dues will only go up!" I can only guess that these people live in some bizarro world where things like maintenance and repairs get cheaper each year with SFR.
Dues pay for things like insurance, landscaping, pool guy, water, etc. Splitting this cost among all homeowners is usually cheaper for you than paying individually. And it's not like if you owned a SFR you wouldn't have these costs.
And special assessments usually pay for large projects. I'd much rather split the cost of a sewer replacement with 50 other homeowners than all by myself for a SFR.
The key to owning a condo is whether it has a well run HOA. If they are, it can be awesome. If not, it can be hell.
This to an extent
What people miss is this: When you run your numbers on a SFH you should calculate for Cap Ex as an expense (roof, siding, AC etc). On a condo you're not going to Cap Ex, you'll have a special assessment. That's all a special assessment is...Cap Ex.
HOAs - it depends. Let mom and dad own the condo and the brother will do the roof, the cousin the siding etc. You get the picture. There have been several lawsuits due to shady stuff like this. The HOA like you mentioned, makes a world of difference.
That being said - Condos are not my number one choice. I think they are very LOCATION dependent.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Jeremy Horton:
That being said - Condos are not my number one choice. I think they are very LOCATION dependent.
It is, sometimes condo is extremely useful in a particular situation, for example in a 5-star school district where the average house price is close to 2 million, having a condo for only 500k is truly a blessing. Also, condo price usually doesn't volatile as much as SF. They still appreciate in a good market, but during a bad market they're not going to crash, the price is very stable. Also, condo is the best choice in California sometimes because due to location and collective ownership, usually, the location is more secure, whereas in the SF neighborhood it is surrounded by homeless.
- 3ySarita ScherpereelBusiness MemberReal Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
@Edwin Lopez HOAs have a bad rap for a reason. If they are run properly great...if not it can add a level of risk on an investment you don't need.
- Rental Property Investor · Member since 2020 · 41 posts · 54 votes3y
@Edwin Lopez
I own dozens of SFR, townhouses, and condos in the past 12 years. After the past experience and the cap rate profit number comparison, I sold all my SFRs and townhouses, exchanged all the SFRs and townhouses into all the condos only because condos can provide me maximal profit in terms of the cap rate compared to SFRs and townhouses.
I have been very successful on owning dozens of condos in Las Vegas. Like one of the other posted mentioned, sometimes, condos has less headaches because the HOA would take care of the landscaping, roof, condo exterior structure, swimming pool etc.
If you own a SFR, you would be the one who deal with all these headaches (roof, landscaping) instead of the HOA take care of it for you.
Both SFR and condo have their own pros and cons.
Both SFR and condo can make good money if they are in the good location.
Don't buy the cheap SFR or condo in a bad neighborhood.
Location is much more important than the type of the property.
Condo is my favorite property type because of the higher cap rate return.
- Investor · Pasadena, CA · Member since 2017 · 612 posts · 523 votes3y
@Edwin Lopez
As others have said, the HOA can be a pain and the dues can change, etc, and it really depends on other factors, like location. Etc
The answer to your second question is Yes, a condo might appreciate like an sfr. I have a condo located on a lake that I bought in a growing market many years ago. And while the HOA has been been challenging, this unit appreciated more than a nearby sfr I bought around the same time.
- Realtor · Jacksonville, FL · Member since 2013 · 227 posts · 35 votes3y
They definitely don't appreciate like single family homes do but if you really want to invest in a condo and you find a "deal" that makes sense, go for it. I would definitely research the community and understand it as thoroughly as possible. Know what your responsibilities are as an owner vs what the community is responsible for. Ask questions like:
"When was the last special assessment?"
"When was the last special assessment before that one?"
"Are there any upcoming projects in the works that may affect you with more fees in the future?"
Consider the location, age of the community, turnover rate, rent to owner occupant ratio etc.
Just like any other investment. Do your due diligence, be conservative with your numbers and if it makes sense then go for it.
- 3yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Edwin Lopez:
Hello everyone!
I need advice, would you buy a condo and rent it out? My numbers are good as far as ROI. However do condos also have equity that rise like a single family home?
@Edwin Lopez Condo's in market like Bryan-College Station will almost assuredly be what is called "non-warrantable". This means conventional financing is NOT allowed therefore your financing cost will go up typically a few % points. Why would a condo project be called non-warrantable? There are actually a lot of reasons why, but the one you are going to find in BCS is the ratio of investment units vs owner occupied in the condo project. Because most owners of projects anywhere close to Texas A&M are doing for the same reason you are, looking to rent the units. So, if there are more non-owner occupiers then owner occupiers conventional will not lend if you intend to rent as well. We do a lot of condo's in the are so it can be done but you do need to know it is different then buying a single family (or even 2-4 unit property). Condo's often look great on paper as the price vs rent can be attractive at first glance but because of the financing issue and all the other issues brought up on this thread but you have to look a little deeper.
Hurst Real Estate, INC4.989 Reviews - Contractor · NC · Member since 2017 · 45 posts · 26 votes3y
From my experience buying a condo as an investment and renting it out is not a good idea. I have bought in different states and have had the same issues with HOAs. They just love out of state investors. If you are local it might be easier to be hands on, they will send you letters in the mail and will fine you......it is a headache. Would i buy again, no. But if I find a good deal i might buy if i can fix and flip. HOA fees will go up and don't forget special assessments that will lower your ROI.
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