Buying a condo a good option for rental?

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Buying a condo a good option for rental?

Wesley Vo
Investor · Las Vegas · Member since 2021 · 5 posts · 3 votes

Hi all, I’m new here and have been doing a lot of research before buying my first rental property, and I was wondering if buying a condo would be a good option. I’m current living in Vegas and looking to buy one that’s under 200k. Most of them are 1 bed and 1 bath with decent cash on cash return. Is there any restrictions that I should know before commit to one? 

Looking forward to learn from everyone here!!

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Maksu Ize
Investor · Vancouver · Member since 2021 · 165 posts · 137 votes
4y

@Greg Scott

You would be amazed how many SFH units burn down per year, sounds kinda dangerous to own one

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    4y
    I would never buy a condo as a rental.   Too much is out of your control.  HOA rules, HOA fees, and general mismanagement are three of many reasons I would stay away. 

    The most tragic example of condo mismanagement is the Surfside Condo in Miami that collapsed.
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  • Wesley Vo
    OP
    Investor · Las Vegas · Member since 2021 · 5 posts · 3 votes
    4y
    Originally posted by @Greg Scott:
    I would never buy a condo as a rental.   Too much is out of your control.  HOA rules, HOA fees, and general mismanagement are three of many reasons I would stay away. 

    The most tragic example of condo mismanagement is the Surfside Condo in Miami that collapsed.

    I see :/

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  • Allen Wu
    Rental Property Investor · Member since 2021 · 335 posts · 193 votes
    4y

    @Wesley Vo

    Wesley,

    I own two condos in Los Angeles. Bought back in 2014 and kept them as rental. In my opinion, it’s not that bad. Sure you pay HoA fees, but as long as you can cash flow, the actual damages are minimized since you only have to care for the interior.

    One of my units has been having plumbing issues…. So that’s been a cash flow burn as of late

    2Reply
  • Maksu Ize
    Investor · Vancouver · Member since 2021 · 165 posts · 137 votes
    4y

    @Greg Scott

    You would be amazed how many SFH units burn down per year, sounds kinda dangerous to own one

    5Reply
  • Landon Clipp
    Rental Property Investor · Chicago, IL · Member since 2020 · 23 posts · 21 votes
    4y

    I personally would never buy any property with an HOA unless I'm living in it. An HOA is meant to protect, and is usually run by, the owner-occupants. The decisions they make regarding their finances is not necessarily optimized for a real estate investor, meaning you can get recklessly negligent HOAs who don't make necessary repairs (like in the Surfside Condo Greg mentioned) or who are over-zealous in repairing/replacing things that work just fine. Both situations are bad for running a business.

    I would tread very carefully. Deciding to by property in an HOA for investing should be the result of seriously exceptional circumstances.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

     I agree with the others. A condo may seem like an easy win: no lawn, no exterior maintenance, outside is always kept up, they have rules to keep tenants in line, etc.

    In reality, an HOA is only as good as the people running it. I've seen many HOAs fall apart when they get a rule-Nazi in charge or when the HOA leadership gets tired and lets things go. It's also very easy for your cashflow to disappear with an increase in dues or a special assessment for major projects.

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  • Wesley Vo
    OP
    Investor · Las Vegas · Member since 2021 · 5 posts · 3 votes
    4y

    Thanks for the advices everyone. I will definitely go back and look more into this property to see if it's a good place to purchase for my first one. 

    1Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    4y

    @Wesley Vo dig deep into the HOA budget and rules. Many condo complexes don't allow rentals or have various restrictions on how many units can be rented.

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    4y

    You can always share those "cash-flow numbers" and experienced investors can pick it apart in 12 secs. It's entertaining for some and knowledge bombs for others. 

    Good luck on the property search! I agree with the comments about condos. I don't even look at condo's given my market and everything I've learned about REI>.

    0Reply
  • Phillip Dwyer
    Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
    4y

    @Wesley Vo Condos are different in every market. You need to do your homework like others have suggested, but it doesn't mean that you can't find something that will work for you. Also, HOA fees are likely higher, but they often include things like water and trash service. You can add those as line item charges on a lease to recoup some of those HOA expenses.

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  • Christopher Nehren
    Realtor · Salt Lake City, UT · Member since 2021 · 14 posts · 10 votes
    4y

    I think condos can work and ultimately the most important thing is to get off the sidelines and get in the game. There are additional things to consider, but if that is what your budget allows then I would say you should definitely dig into it some more.

    2Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    4y

    @Wesley Vo no no no and NO! Don’t buy a condo. It was my first property and the HOAs never stop. Don’t do it. You’re welcome

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  • Wesley Vo
    OP
    Investor · Las Vegas · Member since 2021 · 5 posts · 3 votes
    4y
    Originally posted by @Jaron Walling:

    You can always share those "cash-flow numbers" and experienced investors can pick it apart in 12 secs. It's entertaining for some and knowledge bombs for others. 

    Good luck on the property search! I agree with the comments about condos. I don't even look at condo's given my market and everything I've learned about REI>.

    So the monthly is about $610 for mortgage/insurance/HOA/property tax. Rent for units close by are around $820-950 a month. I'm thinking about putting a 20k down

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    4y

    @Wesley Vo $610 monthly payment including the HOA for a property close to $200K? What lender are you working with because I need that hook up.

    That looks great at first glance but when you factor in the other expenses of holding and maintaining rental property you probably won't cash-flow. If that's the goal you need to find another deal with a better ROI. I would also focus on defining your strategy. Don't except what the market is giving you.

    0Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    4y

    Lots of HOA paranoia on this forum. Yes, it's true that the HOA is only as good as the people running them. The horror stories are few and far between. You hear them because they are outliners.

    The biggest negative with HOAs is that they can change the rules and make renting difficult to impossible depending on local laws. 

    The biggest positive is that you are sharing risks with a lot of other people. Sewer collapses or roof get damaged by hail, everyone splits the cost of replacement/repair. 

    1Reply
  • Phillip Dwyer
    Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
    4y

    @Wesley Vo Check with your lender.  You're likely going to need at least 20% down payment.  Most lenders will tell you the numbers look better with 25% down.

    1Reply
  • Eric GoldmanBusiness Member
    Lender · PA · Member since 2019 · 359 posts · 192 votes
    4y

    Hoa's are never fun/

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  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
    4y

    Hello Wesley,

    Condos have issues for investors. In this post, I will cover a few.

    Length of Tenant Stay

    Condos attract a transient tenant pool that only stays on average about two years. (In comparison, the tenant pool we target stays on average five years.) And, under non-COVID conditions, the average time-to-rent for condos is about two months. The result is a vacancy cost of about $2,000/Yr for condos. This is a huge unplanned annual expense. For the tenant pool we target, the annual vacancy cost is about $400.

    Condo Association Fees

    Monthly HOA for many condos exceeds $200/Mo. High HOA fees eat into your profitability. In some cases, once you take vacancy cost and association fees into account, it may not be possible to make an acceptable profit.

    Maintenance Cost

    Some people choose condos due to the perception of low maintenance costs. Due to the construction materials required in Las Vegas (Mojave Desert), there is little difference in maintenance costs between condos and single-family homes. See the image below.

    Financing

    Condo financing is limited for investors. Please check with your lender, but investment financing may not be available for the specific condo you are considering. You may have the cash to purchase the property, but this limits potential buyers in the future.

    Appreciation and Rent

    Condos have not performed as well as single-family homes when it comes to appreciation and rent increases. Due to COVID madness, all properties are performing well today, but the market will return to "normal" conditions.

    Condo Alternatives

    If you are looking for a lower-cost property than single-family, a few townhome complexes have performed well. However, this is a very small set of communities; most townhouse communities do not perform well for various reasons.

    Another advantage of townhomes is financing. Townhomes have the same financing options as single-family homes.

    Wesley, I hope this helps.

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  • Casey Powers
    Las Vegas, NV · Member since 2018 · 405 posts · 474 votes
    4y

    The Surfside example is extremely rare. The real problem with condos is every plumbing issue becomes a Problem. If your unit is upstairs and you have a leak, it damages the unit below costing you a lot more for repairs. If your unit is downstairs and the unit above leaks, it damages your unit and you have to make the upstairs owner pay for the repairs, which definitely is NOT always easy. Sometimes it’s difficult to get hold of them for days or even weeks, meanwhile the problem gets worse or you have to take matters into your own hands.

    The other problem with condos is WHEN the neighbors cause problems you’ll have your tenant whining about the noise, smoke seeping through their unit, etc. There’s nothing you can do about the neighbor issues, and one bad neighbor in a condo will have your good tenants wanting to leave instead of renew a lease. That gets costly.

    I’m not a fan of condos for rentals. Houses or townhouses with no up-down neighbors are much better.

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  • Brian Walters
    Las Vegas, NV · Member since 2019 · 173 posts · 78 votes
    4y

    @Casey Powers couldn't the same be said about apartments or a lot of multi-family properties?  With regards to the neighbors?  The difference with the condo is there's at least a chance that neighbor owns the unit above/below/next to you but if it's apartment building you know they don't.

    I agree with a lot of what you said about condos.  This is an area I have looked into for my first investment, and the more I look the more it seems like a tough way to go.  The up side is cost per door.  The down side is all the valid points made in this thread.

    What would you suggest for someone looking at the price points of condos in A or B areas within Vegas?

    0Reply
  • Michael Robbins
    Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes
    4y

    @Wesley Vo before placing an offer call (or have your agent call) the hoa to see if they tell you about any rental restrictions.  But be sure to verify the rental restrictions if you end up in contract and receive the hoa resale package.  It is also important to look at how well funded the hoa is.  If the hoa is not property funded with their reserves it can be a red flag on potential special assessments or increase in your hoa dues.  This is especially true with older condo subdivisions.  

    0Reply
  • Wesley Vo
    OP
    Investor · Las Vegas · Member since 2021 · 5 posts · 3 votes
    4y

    Thank you so much everyone. After doing more research and taking advices from everyone here. I'm actually locking in an townhouse instead of a condo :D 

    1Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    It really depends. I own a condo in Los Angeles and it has been good to me.  With the exception of replacing the AC, I've spent about $1,200 in repairs over 6 years.  I also remodeled it when I first bought it.

    1 bed/1 bath condos generally don't appreciate as well and as rentals you really have to look at the location.  For example, if I were to buy a 1 bedroom, I would want to be in a downtown location where it is more common to have these types of units.

    Generally speaking, right now SFR is where tenants want to be. So if you are looking at condos, if it were me I would be looking at 3+ bedrooms. If your budget only allows for 2 bedrooms, I would focus on walkability. You also want to make sure the the complex is well maintained. Otherwise you could be looking at a spike in HOA dues or special assessments.

    I don't think condos are a bad investment, you just have to do more due diligence. 

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  • Phillip Dwyer
    Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
    4y

    @Eric Fernwood I'm curious where you're getting your DOM stats for condo rentals. I just did a quick MLS search for leased condos over the past 90 days. The average days on market was 19 days and the median was 11 days.

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  • Jayson Cain
    Lender · Manhattan Beach, CA · Member since 2017 · 423 posts · 268 votes
    4y

    I bought a condo in Long Beach, CA back in 2016. Although it appreciated in value, I would not purchase another one due to lack of control to your property. If you have a choice of buying a condo and SFR, I would recommend going with the SFR

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