Rental Property Investor · Milwaukee, WI · Member since 2019 · 46 posts · 63 votes
Hello I'm looking to buy a condo. There is this one bedroom condo for sale that's about $100k. I want to buy it because it's in a prime location and I'm sure will be easy to rent out. I was looking to take a FHA loan out for the condo and my payments would be about $550 a month plus a $178 condo fee. I know some people that live in the complex that have a similar layout that's paying $1300 for rent. The cash flow seems to be there but I keep hearing negative comments about buying condos. Does anyone have any advice or experience in buying condos?
@Mike McCarthy yeah I talked to my lender and told him I plan on renting that and he said there is no way they can make sure I’m living there. He said it’s not like there are going to send a investigator there.
Do not commit mortgage fraud. It doesn't really matter what your lender says regarding the matter. "But my lender said you wouldn't check" isn't going to hold any water when they're sentencing you to jail. Plus it's just unethical, plain and simple. I would frankly work with a different lender if that's the counsel I received.
You can likely get around this with a 5% conventional loan. It's a minimal amount more for down payment and gets around your issues.
Now that being said, the big problem with condos typically come with the HOA. In addition to the fees rising over time and thus depressing both your cashflow and your total appreciation potential, you need to comb through the CCRs and the financial operating statements to make sure there are no whammies coming. If the association is underaccrued for a big expense, you will end up staring at a 5 figure plus one time assessment when they need to replace the roofs or whatever.
@Justin Reyes My only problem with condos is HOA fees and the rules. HOA fees tend to rise over time cutting into your cashflow and you want to make sure that the rules allow you to rent it out when you are ready to.
@Mike McCarthy yeah I talked to my lender and told him I plan on renting that and he said there is no way they can make sure I’m living there. He said it’s not like there are going to send a investigator there.
@Justin Reyes from what I have read... they randomly do send people out and ask if your the owner.. if you are they take a picture of you inside the house...
@Mike McCarthy yeah I talked to my lender and told him I plan on renting that and he said there is no way they can make sure I’m living there. He said it’s not like there are going to send a investigator there.
Do not commit mortgage fraud. It doesn't really matter what your lender says regarding the matter. "But my lender said you wouldn't check" isn't going to hold any water when they're sentencing you to jail. Plus it's just unethical, plain and simple. I would frankly work with a different lender if that's the counsel I received.
You can likely get around this with a 5% conventional loan. It's a minimal amount more for down payment and gets around your issues.
Now that being said, the big problem with condos typically come with the HOA. In addition to the fees rising over time and thus depressing both your cashflow and your total appreciation potential, you need to comb through the CCRs and the financial operating statements to make sure there are no whammies coming. If the association is underaccrued for a big expense, you will end up staring at a 5 figure plus one time assessment when they need to replace the roofs or whatever.
@Frank Jiang wow I didn’t look at it in that way. I’m definitely not doing it now. He made it seem like it wasn’t breaking the law. But yes I heard about those one time assessments with big expenses. I think I’m a stay away from condos. Thanks
Don't sweat it, that's what the community is here for! Besides, it's better to find out today than the day before closing when you have to sign a document.
@Justin Reyes Condos can actually work pretty well in the right situation. The way to look at the HOA fees are that they represent your capex expenses, especially if they cover all exterior items such as windows, decks, etc. If the Association is well run, major expenses are generously accrued for, and there are no onerous rental restrictions, I wouldn't be concerned about that aspect. The bigger issue is whether or not you can cash flow properly after those HOA expenses and if appreciation is a possibility.
I agree with Mark, don't let the HOA fee scare you...just do your due diligence on the HOA association financial. If you can get 1300 rent for a 100k condo with an HOa of 178 sounds like good CF. If you have friend there you probably already have an idea of the type of renters you can attract.
When I was trying to purchase a home a single family home was too expensive for me and my only option was to buy a condo. I don't regret it at all! I lived in it for several years then turned it into a rental and get awesome cash flow to this day. I actually enjoy having a HOA because I don't need to worry about any of the landscaping, trash, water, or exterior of the building. If something outside needs to be fixed I call the HOA, it's like having a property management company. The HOA dues do eat into my profits but I look at it as paying extra for convenience.
I know a single family home will be more lucrative in the long run, but if all you can afford is a condo... it’s better to have one cash flowing rental than none at all!
Hey justin, good question. for what its worth, heres my tidbit on investing in condos. Ultimately Condos can be ok if they cashflow and monthly income is your goal! but there are some things to consider.
Some pros to condo investing would be:
1). lower maintenance. ( The exterior is general kept up by the association, You don't need to worry about a gardener, broken sprinklers or snow removal)
2). lower price point ( Generally condos are a bit cheaper than SFRs but depending on HOA the monthly payment could easily offset this perk)
3). Due to stricter regulations in many newer condominium communities and it is less likely that your condo will become an illegal grow operation, drug manufacturing facility or party house
4). Condos can a bit easier when it comes to turnover when a tenant moves out ( Depending on the HOA they theres usually no landscaping or exterior work necessary between tenants since that is kept up by the association)
5). Amenities ( some condominium complexes have amenities that attract tenants such as a swimming pool, a gym or park)
The cons:
1). Appreciation ( Condos typically don't appreciate like a SFR)
2). Less desirable ( can take longer to sell, and the market demand for condos is usually lower than SFR's)
3). lower rent ( in many areas condos generally rent for less than SFR's)
4). HOA's ( condos typically have HOA dues and these can be rather high depending on the association. Many times this is the factor that kills cashflow required for the investment to work)
5). Management ( although leaving the exterior to others for upkeep can be a pro, if there is bad management or a neglectful association it can also be a con. A property is only as good as its management and an association that mismanages its funds and duties can affect the value and desirability of your property)
Hope this helps and good luck in your investment endeavors.
I would say also check how the board votes and decides on issues. I know of a few people that had the HOA decide with little notice that condos were no longer allowed to be rented. On top of that, all the people in the property were trying to sell out their rentals at the same time, lowering the selling prices.
@Justin Reyes. Make sure to read the CC&Rs COMPLETELY. Check the HOA reserve budget to see if any assessments are on the horizon and the triple check your numbers. What could go wrong?
HOA CC&Rs prohibit rentals.
There is a major repair project on the horizon and the HOA is going to assess a payment.
HOAs traditionally don’t like rentals. a. A rental can lower property values. b. Most problems are cause by rental tenants.
*If you can sit on the HOA, do it at least once. You will learn a lot about your property, HOA law, and about crazy people that will lie straight to your face. Good luck
@Sally Fairchild and one more thing. Elevators.....I love them and I hate them. I love to use them but as an owner of a HOA run condo I hate them. Elevators are a monster money eating expense and will crank up your HOA fees!