Question about buying 1 to 2 bed condos as investments
Professional · Baltimore, MD · Member since 2010 · 79 posts · 47 votes
Question about buying 1 to 2 bed condos as investments
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San Francisco, CA · Member since 2016 · 238 posts · 204 votes
10y@Jerome Harrod II- I know you allude to this, but it is heavily dependent on the market (I know that's not the answer you want to hear). Let me give you some examples, to show that it's not just as simple as college / mall is a good place to locate:
- College town: vacancy is in February ... you are less likely to get a college tenant until the summer season turnover (this goes with season argument)
- Price: If you are $100 - $200 below market rates, then it will obviously be easier to fill than one that is at market rate
- Industry: If the town/city is dependent on one industry, then it will be great when that industry is booming ... but not if disruption happens in the industry
- Macro-economic trends: If the economy is doing poorly, then being located near a mall makes no difference. In fact, you'll see all vacancies increase.
I always advocate to run the numbers. Great locations (college town, near a mall) tend to have a higher purchase price, which could make it a worse investment (if you can get a better deal elsewhere with comparable rental rates).
Hope that helps!
6 Replies
- San Francisco, CA · Member since 2016 · 238 posts · 204 votes10y
@Jerome Harrod II- I know you allude to this, but it is heavily dependent on the market (I know that's not the answer you want to hear). Let me give you some examples, to show that it's not just as simple as college / mall is a good place to locate:
- College town: vacancy is in February ... you are less likely to get a college tenant until the summer season turnover (this goes with season argument)
- Price: If you are $100 - $200 below market rates, then it will obviously be easier to fill than one that is at market rate
- Industry: If the town/city is dependent on one industry, then it will be great when that industry is booming ... but not if disruption happens in the industry
- Macro-economic trends: If the economy is doing poorly, then being located near a mall makes no difference. In fact, you'll see all vacancies increase.
I always advocate to run the numbers. Great locations (college town, near a mall) tend to have a higher purchase price, which could make it a worse investment (if you can get a better deal elsewhere with comparable rental rates).
Hope that helps!
- Real Estate Agent/Investor · Chicago, IL · Member since 2015 · 229 posts · 108 votes10y
here are some key things that you will want to know or at least your agent to know when investing in condo for what I have gathered since i'm currently working with two people that are looking for condos.
Does the HOA(Homeowners Association) even allow you to rent. some places also have a time frame that you have to live there before you could rent them out. Are there any special assessments that will be coming up in the future this could cause a major setback and a big hole in your pocket if one was to come up. Does the HOA have any reserves to cover the maintenance and repairs of the common areas when they come up. What are the monthly dues that they are asking for.
For these reasons I don't believe that a condo is a good investment since one of the major advantages of investing in real estate is to be able to have more control of your investment. Condos to me is more or so just like buying a stock to many rules and if somebody messes up you will end up paying for it.
Condos are great for a low barrier to homeownership especially in the area here in chicago where prices are high.
Maybe look into say a C area neighborhood to possibly find a 3-4 multifamily building and use the 30-40k for a down payment with a conventional loan or use a FHA loan and do a 3.5% down payment and use the rest of the money for future building repairs.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes10y
We've bought 1, 2, and 3 br condos. We've had good success with them also. We're dealing in A/B areas. there are things you need to watch for and be aware of:
1. Condo restrictions that eliminate or limit # of rentals. As I talked about in Bigger Pockets Podcast #82, I did have two condos that limited rentals to 10% of the total # of units and already had that limit. As a result I had to sell them (at a profit) since I wasn't planning to move there.
2. Review the condo docs for other restrictions like no pets, or even minimum rental periods like 30 days which would limit air BnB type rentals.
3. What is the condo fee? Calculate that in your costs and can you still cashflow? If its not positive cashflow, pass.
4. How many rentals are in the complex? If there are too many rentals owner occupants won't be able to get FNMA or FHA financing which reduces your potential buyer when you sell.
5. Does the condo association have reserve funds for capital improvements and unexpected expenses like heavy snow removal, etc.
6. Does the condo association have a history of "special assessments". sometimes these are used to cover an unreasonably low condo fee which doesn't cover their normal expenses.
7. What's the demographics of the condo? Retired, senior citizens, young professionals, families, etc does that fir with your plans.
all of these aspects and more need to be considered before you buy.
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes10y
In general condos don't make the grade for most investors. Ironically, I started my investment career buying 4 of them, had great success the first 3 yrs since I bought at a deep discount to the market, had 100% occupancy and they cash flowed only because to get the deep discount had to go all cash. Once the hedge fund who had come in to cherry pick many of these from a bankrupted owner moved out and turned over the HOA to the owners, the HOA fees skyrocketed since reserves were too low. The fees started really eating into the cash flow. I sold out and decided condos were not for me. I'm sure there are specific situations that may make sense like mind did initially, but you really lose control in a condo association and that usually comes at some sort of cost that is not great for the investor.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes10y
I currently own, or have owned condos in the following locations....Frederick, Germantown and Laurel. I made pretty good cash flow on all of them, and made a descent profit on appreciation when I sold my Laurel condo. So I like condos. Easier to fill than my single families, and a lot less work.
District Invest Group545 Reviews - Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes10y
1 bed room and condos in general not the bests for investors in general. HOA are usually the deal killers on numbers.
Alex
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