Investor · Richardson, TX · Member since 2017 · 63 posts · 7 votes
Hi everyone!
I have been interested in some of the affordable C and D class condos in the North Dallas area. There are a few that I can purchase with cash and if priced right the numbers make sense for me.
I have read some of the general thoughts and pro's and con's of condo investing. However, I was hoping to get more applicable thoughts from you locals.
I will admit, though the units I have identified do cash flow enough for my needs, I am concerned about the appreciation component of condo's in that area.
Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
8y
@Cameron Marmon I would not count on any appreciation on C or D condos. Personally I would probably not invest in them unless I owned a majority share of the complex and could control the HOA.
Rental Property Investor · Everywhere, USA · Member since 2012 · 689 posts · 525 votes
8y
@Cameron Marmon - not familiar with your local market, but I have done a lot of condo investing and affordable housing (C class areas). My advice, if you don't have a lot of experience stay away from D class, and really avoid C class unless you think it is on the fringe of a B area and progress is headed that way. It is easy to get lured into C/D areas based on price points and high returns. But a lot of those initial high looking returns get eaten up really quick with higher maintenance and higher turnover. It also takes a certain mindset dealing and being understanding of this tenant base. I have seen swat teams raid neighboring units managed by slum lords who didn't screen tenants, I have dealt with abusive boyfriends putting my tenant in the hospital, broken down cars (which leads to them missing work because they can't afford to fix the car, which then leads to them loosing their job and then getting behind on rent), being threatened with a gun (guy lifted up his shirt showing me the gun in his belt), to countless sob stories. I felt I did very well because I had a unique advantage of having spent years doing aid work overseas in places like the slums of Nairobi, Kenya, or in Haiti, or rural parts of Indonesia. I have seen so many people get burnt out very quick, and loose their money on C/D areas.
Condos in general don't seem to appreciate a quick as SFH/SFR. And C/D areas really don't appreciate much. I have seen countless C/D properties sell for a loss simple because the owner just wants to get out.
Then lastly, for condos, most people miss the fact that you need to analyze the HOA. If the HOA is defunct, not operating properly, is underfunded, or has any other issues, it can prevent financing challenges for future owners (read this affects your exit), and effects the quality of the overall property. It can also lead to the many horror stories of assessments of thousand and thousands of dollars because they need to put on new a new roof or do some other capex project and the HOA is broke.
But with all that said, don't let it discourage you, I just want to make sure you go in with your eyes wide open and are not distracted by potential returns.
Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
8y
@Cameron Marmon I would not count on any appreciation on C or D condos. Personally I would probably not invest in them unless I owned a majority share of the complex and could control the HOA.
Investor · Reno, NV · Member since 2015 · 167 posts · 90 votes
8y
Cameron Marmon
Really consider your exit strategy. Many c/d condo buildings have a high non-owner occupancy. That means traditional financing is not possible for the average buyer. A piece of why the prices are reasonable is because they require cash to buy and a cash buyer when you sell. This can affect your time on market as well as your final sales price.
I’m also not trying to talk you out of it (I have a couple myself) just make sure you factor it into your underwriting and make sure you buy right.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
8y
@Cameron Marmon Don't do it.....the numbers almost never work on condos. The HOA dues will kill the return. Remember you're paying those even when they are empty. I think you're also end up paying for amenities that you don't get the return on....for example pool, yard, fitness.
There's also more chance for things to go wrong. What happens when your tenants put the trash out on the wrong day. Maybe you get the fine and never can collect from the tenant. What happens when they disturb the owner neighbors. What happens if the owner occupants just get tired of having renters nearby and enact HOA rules to prohibit rentals. I've seen that happen at more than one place in the DFW area.
I think the other real trick is ....what is your exit strategy? With many of these places, they won't finance or it is tough to get financing, so you are left selling to other investors with cash. So then it becomes an issue of cash flow.
While I have no good info to back it up other than places I've been in, it seems like the tenants on these can be a little tougher on units and there is more turnover. So you can have higher costs than some alternative investments.
There are perhaps a couple of exceptions to these ideas....one is if you think you will have enough money over time to buy most of the units in the complex. Then you could reverse engineer it from a condo to an apartment....and then figure out how to sell it to an apartment investor...or maybe tear the whole thing down and build something with higher value.
Investor · Dallas, TX · Member since 2014 · 112 posts · 83 votes
8y
I have always been taught that Condos prices are first to fall in a down market, and the last to rise in a good market.
May condo complexes have in there operating regulations that only so many units can be rented. So if you don' t read the condo documents you may purchase and find that you can't rent it out because there are too many rentals.
Also, there is a risk of special assessments at underfunded condo complexes. The additional money that you need to pay because of unfunded capital improvements.