Condo vs two family?

Question

Hi all,

I have been looking for two families for a very long time now but unfortunately the market is not offering much that seems to be a good investment. As a result I have been considering buying a condo with the eventual goal being to move out and rent it out. Does anyone have any advice or suggestions here? Any recommended books on this type of investment? Do you believe a two family is a better investment than a condo?

I’m looking in northern NJ and the two families on the market either won’t cash flow (high asking and property tax) or they are in C or D markets which I do not want to purchase/live in.

Thanks,

Dominick

Dennis M. · Answer

I honestly don’t know how anybody could do real Estate in canada or other restrictive Countries with a hot market . God bless the man willing to buy a duplex for hundreds of thousands of dollars that does not cash flow at all

Ricardo R. · Answer

@Dominick Tanella a good problem to have. Well in our experience condos tend to appreciate slowly and are one of the first ones to crash during a down turn, there is also quite a mix of rentals and primary residence owners. Duplexes on the other hand might be a bit more stable as they are all 'investment' properties whether the owner lives on one side or not. Neither of the above is either good or bad but just good to keep in mind, and not that you'll be investing purely based on appreciation anyway.

From an investment standpoint I'm not a big fan of condos because: 1) there is usually an HOA/COA to conform to and with also an association fee; 2) there is no unit location 'uniqueness', sure some units may vary slightly but generally, you have a list of competitors with a product just like yours, to left and right of you should those owners decide to rent their properties as well. I guest its only fair to point out some of the positives - because there is likely an HOA/COA you exterior maintenance will be taken care off are part of your dues - but there are dues!

But really, it might just depend on your location and what you are looking for. It may not be a bad idea to find a local property manager or even one in your state to get their opinion, check us the BP user @Peter T.   I believe he's a PM in your are and would probably be able to help you out a bit more tailored.

Dennis M. · Answer

This is a no brainer . Of coarse you want a two unit over a condo . Do you want to actually make money or what ? Get an HOA involved (in an already insanely taxed state like jersey ) and see how much cashflow you get when it’s all said and done ! That is like asking should I pick a girl to marry that weighs 150 pounds or 350 pounds ?

Mike McCarthy · Answer

@Dominick Tanella I’d personally stay away from condos for all the reasons everyone mentioned. Not only do you have to deal with city/state laws (which at least have an approval process) but whatever the HOA decides to implement. You hear about way more bad HOAs than good ones.

I’d look for a SFH for a rental. Duplexes are good too, but harder to come by in some areas.

Good luck!

Shawn Jackson · Answer

@Dominick Tanella buy a two-4 family in the c or d neighborhood and with the cash flow but yourself a condo or even, better a small house in the area you would like to live in.

In a hot market you sometimes have to buy on speculation, I try not to, but with risk there is reward.  You can raise income, lower expenses and grieve taxes.  You just have to put the work in and be savvy.

Marcello Di Gerlando · Answer

@Dominick Tanella

To help with my own decision making I limit what I spend my time on when looking for real estate to buy. One of my criteria includes no condominiums period. This is a portfolio preference for me. Some folks may do well with buying condos. I have spent many hours scrolling foreclosure properties and taking calls were the inventory didnt work for me. I also only look for properties that are built 1990 and later. Never any drug use and never with tenants I have to evict prior to occupying. To be clear the properties I leave alone may work for you and others. However everything I listed has additional grief and costs you may not he able to control. Buying right is one of the secrets to successes in this game as I'm sure you already know. Good luck. Food for thought.

Hai Loc · Answer

Lol.. I know.. believe me and I am sure its like that in Seattle San Fran NYC and Boston as well..

Hai Loc · Answer

I am on the same page as you but some markets don't cooperate like in Toronto

With the prices in Toronto even purpose built legal duplexes do not cash flow with today's prices. You would have to hold the property for a few years until cash flow is positive with steady increases..

Condos do not have HOA restrictions like in the US. They are rented to long terms tenants all day. Only short term rentals of restrictions in some buildings

Both condos and residential single family rentals need to have creativity to cash flow..

Nik Corbaxhi · Answer

@Dominick Tanella, condos can work but there are a few different considerations. Just briefly listing them below, search for other posts on condos in here as this question has definitely come up before:

1. Check condo rules to see if renting is allowed and whether there is a cap. If the cap has been reached or close to, you might want to reconsider for your investment purposes.

2. HOA fees, how much are they and what do they cover.

3. Special assessments and litigations against the condo - are there any major expenses coming (roofs, driveways, windows, furnace...etc)?

4. Calculate your HOA fees into your monthly expenses as well as account for maintenance and vacancies (10-15% of rental income) when calculating cash flow.

5. Cap rate/CoC return. Everyone has their own way of how aggressive they want to be with their investments, so you will see people agree to disagree on this all the time. Personally, I would like my CoC to be in the 10% or higher in order for the investment to be worth it. This is after PITI, vacancies and maintenance costs.

I hope this helps.

Condo vs two family?

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