Condos verses single family homes?

Question

What are the downsides I should watch out for buying condos for buy and hold verses single family homes? If any?

Lynn McGeein · Answer

If you're buying a condo, you have little say in condo fee raises, special assessments, wasteful spending, crazy rules like eliminating rentals, unless you're on the board or have enough proxies for a strong vote.  I've heard that there are good boards, but the board for the one condo we did buy was extremely wasteful, letting the pool house roof continue to rot, but wanted all units pressure washed for $400 per unit, even though only 1/3 of them actually needed it.  Sewers were going bad, and instead of repairs before back-ups caused unit damage, they paid tens of thousands to repair damaged units, some multiple times, before finally fixing the sewer issue.  They charged each unit about $1500 special assessment for it because they'd wasted funds elsewhere.  They didn't keep up with FHA approval requirements, so we lost FHA approval right after I listed for sale, nothing we could do because the board didn't care about getting it done on time.  We avoid condos because of our experiences there.

Lee Bell · Answer

Try to see what HOA liabilities may be looming.

Cap Ex, deferred maint, ask about pending litigation involving the HOA.

Litigation will likely kill financing options.

Amer Mallah · Answer

Due diligence on the HOA is really important. If they don't know how to manage HOA fees, your investment could be put at risk in the form of surprise special assessments that are a result of bad management. I think of an HOA/Condo Board as a contractor you can't fire later. Make sure up front that they're the right fit for your investment.

Shelby Pracht · Answer

@Daniel Reeder

We LOVE condos as rentals, at least at in our area. It's so nice to have all the snow removal taken care of, which can be a major issue here. I've become friends with some of the managers so they keep me updated on any issues or let me know if they have problems with any of the guests/tenants.

Theresa Harris · Answer

@Daniel Reeder  With those numbers, why not rent it out for a year to avoid the high taxes on resale and then sell it?

Daniel Reeder · Answer

Thanks for all the feedback everyone!  Not having all the control on this property with it being a condo was a concern.  There is good and not so good to that I guess.  This is what the numbers look like. There is very few rentals in this area but the demand is strong to live there. This will be a cash deal and after rehabbed and rented I plan to finance it and move on to the next property.

Asking price $48k

Rehab $15k

Appraised value $89k

HOA Fees $40 mo.

Insurance $25.50 mo.

Taxes $41.75 mo.

Rent $950

Steve Rozenberg · Answer

@Daniel Reeder

The biggest challenge I learned from buying condos is that the HOA fees can be high which affect your cashflow and go up at any time and they can change them as they need to I had HO a fees double on five units that I owned which made the property not cash flow and there was nothing I could do about it because I could not increase the rent For the market

and when you have a vacant unit they can sometimes be difficult to allow access for a potential tenant to come see the property also make sure if you buy a condo that they allow the property to be used as a rental some HOA‘s do not allow rental properties or a certain percentage of properties in the units to be rentals

Tim Buckingham · Answer

I have been going back and forth on this for awhile now and I have been leaning towards a condo is a area that seems to rent well. One thing that is holding me back is not the HOA costs its the lack of appreciation on the property value.

For me it does not meet the BRRRR strategy.

Nina Hayden · Answer

Agreed with above!  I personally love condos as investment only if they are in highly desirable areas that no matter what the economy looks like  rental demand will be there.  One thing:  HOAs can make or break the deal.  I can cash flow $300 max per door currently with condos due to increasing HOAs.  Def check to see if you’re able to rent it out, whether short term or long term.

Kenneth Garrett · Answer

@Daniel Reeder

As with any HOA check the by laws as far as renting units.  Many HOA's can limit the number or percentage of rentals allowed and they can change the rules at any time.  The HOA fees can go up at any time based on improvements.  This applies to any HOA whether its a townhome development or other.

Condos verses single family homes?

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