Upper Marlboro, MD · Member since 2012 · 13 posts · 0 votes
Hello all,
I'm curious to know some of the pros and cons of investing in a condo. I dont have a strong understanding on "delinquent condo fees" and how that plays a factor in investing in a condo. I understand that FHA will not finance with delinquent condo fees, however, if the investor pays to update the delinquency wouldn't that make for a great deal?
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
Another BIG negative - FHA approval. You have to check FHA's database to make sure that the development itself has been approved by the FHA or else no FHA financing which (obviously) negatively affects the market value of the condos within the development. Even if its is FHA approved you will want to know when it expires and whether or not they will be seeking 're-certification' before it expires.
Real Estate Consultant · Lansing, MI · Member since 2011 · 356 posts · 306 votes
14y
Condos have a couple negative aspects. 1st, the condo fees, which will never go down, eat into your monthly cash-flow. While the occupant will have reduced expenses like trash, water, etc, the landlod does not see the benefits. you could raise rent to cover it, but that may get you fewer leads. A 2nd drawback is the fact that you are often limited with making any improvements. Even something as simple as paint can require the approval of the HOA. Lastly, condos are sometimes harder to sell, but this will depend greatly on the market.
As for the past HOA dues, they can and should be settled before or at closing and would bring it current. I wouldn't think it will be a problem.
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
Another BIG negative - FHA approval. You have to check FHA's database to make sure that the development itself has been approved by the FHA or else no FHA financing which (obviously) negatively affects the market value of the condos within the development. Even if its is FHA approved you will want to know when it expires and whether or not they will be seeking 're-certification' before it expires.
Upper Marlboro, MD · Member since 2012 · 13 posts · 0 votes
14y
@Brian Thanks for the input.. Im finding that deals on condos in the area aren't bad at all but I suppose that is due to all the stipulations and HOA's governing.
@ Ibrahim, Where would I go to check the database? Your answer is the one that I was looking for. Through networking in my area, I keep hearing "FHA wont approve" and continuously see "cash or conventional financing only" on the listing. I need to figure out how to get to the FHA database to see if they'll approve
SFR Investor · Virginia Beach, VA · Member since 2010 · 150 posts · 36 votes
14y
I don't see HOA fees as negative, especially on an out of state property. I have two condos in my portfolio and I like having the HOA restrictions to help keep the community, tenants in check and the risk of the community deteriorating over time is also reduced with a well run association.
Currently I live near a huge townhome complex (few hundred townhomes) that was built in the late 90's. They have no HOA or community association. Most of the community looks run down, I drive through it often and about 1 in 10 of the townhomes is an eyesore.
Involved In Real Estate · Hyattsville , MD · Member since 2011 · 298 posts · 256 votes
14y
I'm not sure if anyone else mentioned it but condo's have a problem with both Conventional and FHA financing. For conventionals if there is more than 51% investor concentration thats a problem as well if there if more than 15% deliquency of OTHER unit owners can cause you to not be able to sell or refinance the condo if needed. Worst part of a condo is exit- You may not always be able to exit because you can't find a buyer who will get financing.
Second thing about condo's which I'm sure has been mentioned is the HOA fees- they are always increasing and its like having a landlord who offers no benefits.
Lastly don't forget that you can get the condo foreclosed on by an HOA in an effort to get paid- you can pay the mortgage for the next 30 yrs free and clear and owe $1000 to the HOA and they foreclose.
Multi-family Investor · Morton Grove, IL · Member since 2011 · 59 posts · 8 votes
14y
An investor landlord has to abide by the Condo HOA Decs/Bylaws and Rules. There are monthly assessments which will cut into your profit. There could also be a "leasing cap amendement" which limits the rentals in the development/building to a certain percentage. When this limit is reached, you will may not be able to "rent" the condo, and may be "forced to sell". It would be wise to talk to some local realtors and possibly RE attorneys for info on the particular condo complex/building.
Property Manager · Costa Mesa, CA · Member since 2012 · 23 posts · 8 votes
14y
Patrick:
This is my first post on this site, but let me warn you that as an HOA Manager and a Real Estate Investor, Condo's require more research than single family homes.
I have seen investors lose a large amount of money in Condo's because they did not research the HOA's finances, condition of the HOA, and the HOA's Board of Directors! Here are some commonly overlooked items by investors.
HOA Finances
Just because an HOA has low Association Dues does not mean that it is a deal.
Just because the HOA has low Association Dues does not mean that it is collecting enough money to cover it's operating cost and saving in the case of an unexpected maintenance emergency. This could lead to Special Assessments that could range from a temporary monthly increase (i.e. $100 per month) or a one time $1,000 special assessment.
Request from the Owner a copy of the HOA Financials and see how much they are spending, where they are spending, and what they have on the balance sheet. All the owner has to do is request it from the Management Company.
Condition of the HOA
Deferred Maintenance
During economic slow downs like what we are experiencing now, HOA's tend to have a higher delinquency rate which causes the HOA to defer it's maintenance in the hope that they recover those funds in the future. A lot of the time they don't. This means one of two things. 1.) The HOA creates a special assessment when something major happens (i.e. reroofing, repiping, etc) or 2.) there is a long wait times to repair HOA issues that could cause discomfort to your tenants or damage your property. *If the HOA does not have the money to pay for repair, they will delay on repairing your unit. If you are trying to rehab a unit and resell it, this can cause delays in your rehab and make costs higher*
Walk the complex with the owner and look at the conditions of the roof, stucco, siding, and balconies. Also, a great questions to ask is how often do the pipe breaks in the HOA and do they ever experience long lapses of no hot water. This will tell you the condition of the pipes and water heater around the complex.
Board of Directors
This is a volunteer job that condo owners do in their free time. Since most of them work, they maybe get to spend a few hours per week on HOA Issues. This means that requests can be delayed and money can be mismanaged very easily, especially in smaller HOA's.
Great questions to ask are, how often do they have Board Meetings, how quickly does her maintenance requests get resolved, do the Board Members break the Rules and Regulations themselves but issue fines and warning to other Homeowners. These questions will help you determine the strength, fairness, and commitment the Board Members to the the HOA.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
14y
I think an important PRO that has not been mentioned, less exterior maintenance. I don't really like condos but I get a lot less calls on them... probably 1/3 of my calls on houses are exterior items. None of those on condos.
Indianapolis, IN · Member since 2008 · 244 posts · 36 votes
14y
I flipped a condo and had to accept a low ball offer to sell it. The $230 per month condo fees was eating at my bottom line. I could not make immediate improvements to the exterior as I had to wait for the association to improve all units at the same time. They make a good buy only if you buying for next to nothing.
Property Manager · Costa Mesa, CA · Member since 2012 · 23 posts · 8 votes
14y
At the HOA's that I manage, it is very rare that we see someone buy, fix, and flip.
As a side comment about the exterior of the property, while the owner is not directly responsible for it (covered by Association Dues), a downside is if the HOA decides to defer the maintenance of the exterior of the property which would limit curb appeal.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
14y
I have flipped a couple condos. The challenge is, if you buy via REOs the listing agent is going to do their BPOs based on other comps in the association. There usually is not a big enough spread of comps to make a profit if you are limited to 60 comparable properties and maybe 5 actual sales in the last 12 months.
Some people who mail free-and-clear condo owners seem to do quite well.
I
Investor · Virginia Beach, VA · Member since 2011 · 68 posts · 12 votes
14y
From a buy-and-hold perspective, my best performing property is a condo, so sometimes condos do have a better cashflow than SFHs, mostly because of the lower price point. And because the condo market seems to always be softer than SFH, the negotiation can be easier too during purchase.
However, I still keep an eye on the condo fees for the longer term. You want to make sure that the management is good.
I guess the trick is to negotiate the price down enough so that even if the condo fees go up, you'll still have a lot of padding month-to-month.
Investor · Los Angeles, CA · Member since 2011 · 242 posts · 61 votes
14y
HOA fees in the San Fernando valley area can be $350+. I have two friends that live in condos and their HOA monthly dues are $372 and $385. One is very maintained and the other is just ok.
If an association has many people stop paying their HOA due to loss of income or foreclosure than HOA dues will be raised or even an asseesment may be issued.
Property Manager · Costa Mesa, CA · Member since 2012 · 23 posts · 8 votes
14y
Andrew:
Another thing to consider with HOA's in the San Fernando Valley and their Association Dues is Earthquake Insurance. For the most part, that is pretty high for an HOA in the San Fernando Valley. Most HOA's are around the $300 range if they do not have Earthquake Insurance. If they do have Earthquake Insurance that could easily increase the Dues another $50-$100 per unit depending on the size of the HOA.
Real Estate Investor · Ottawa, Ontario · Member since 2011 · 217 posts · 14 votes
14y
Such problems as high HOA fee, delayed maintenance, and restricted rental rules, are problems only when you purchase one unit in a large condo.
When you can buy multiple units in a small condo, say 7 out of 10, then you can control the board of directors, and none of these problem exist, because every thing is now up to you.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
14y
Originally posted by Jason Kosowan:
From a buy-and-hold perspective, my best performing property is a condo, so sometimes condos do have a better cashflow than SFHs, mostly because of the lower price point. And because the condo market seems to always be softer than SFH, the negotiation can be easier too during purchase.
However, I still keep an eye on the condo fees for the longer term. You want to make sure that the management is good.
I guess the trick is to negotiate the price down enough so that even if the condo fees go up, you'll still have a lot of padding month-to-month.
Jason, thanks for the comment....
Do you have ever have problems with the condo changing the rules about renters, or are you grandfathered in already with your tenants, if they decided to change the rules?
Also, how difficult is it to look at the condo association's financial records and determine if they are in trouble (before you buy)? Is it better to use a lawyer when buying a condo, as opposed to a bank-owned SFH where it's fairly cut and dried to buy without the help of a lawyer?