Should I buy a condo to rent out?

Question

So I plan on getting into the rental business. I noticed the prices of condo units are much lower than the single family homes in the surrounding areas. I am thinking it would be much easier to rent out a condo versus a single family home from a financial stand point. What do you guys think? What are some things I need to think about and research on if I go this route? What are the pros and cons?

Thomas S. · Answer

Condos and SFHs are both a poor selections to invest if your goal is maximising positive cash flow.

Chris Mason · Answer

Most REI dislike condos because of the lack of control over the HOA. You are landlord, but you're kind of only 50% landlord because the HOA has all those other responsibilities, that they may or may not uphold. And when the HOA drops the ball, it's not the HOA that your tenant will be calling, it'll be you.

That being said, you can just consider this a risk and if there's sufficient risk premium in it for you, go for it.

Jeff Bridges · Answer

The pros are lower entry price. the cons are false sense of control and false sense of lower costs. All condos have condo fees and those fees vary widely between associations. they can completely wipe out your cashflow, but you can include them in your analysis and potentially find some that are profitable in a city area. finally, you need to vet the association, which is difficult to do since they arent a public entity and don't publish their financial health. old buildings with expensive deferred repairs can cause assessments to skyrocket and owners will be on the hook for the cost. If the association bank account doesnt have enough funds, owners can be required to pay.  also the bylaws can be changed to restrict rentals in the assocation at any time, so that is something to be aware of as a risk. you also need to check each condo if they allow rentals before you buy, so you know if its even allowed for obvious reasons.

Yes they can cashflow, but there are risks and some of those risks are difficult to mitigate or assess during the purchase phase due to hurdles.