What is your formula for a buy and hold condo

Question

Buy and Hold people, I'm curious, What do you consider a good deal on a condo considering the market is so tight?  Are you looking for rehabs to keep the price low or would you rather have a place with a tenant in place. do you expect to get it below market as is and if so how much?  How are you going about investing is this highly competitive market? or are you just waiting for the down turn?

Michael Haas · Answer

I'm a buy and hold investor as well, and my formula for buying condos is...

Don't buy condos.

Sure, purchase prices are lower and they're pretty low-maintenance rentals, but most of your creative layout and leasing options are gone with a condo, and the returns I look at in Seattle for condos are abysmal. Add to that the risk of rental caps, picky neighbors, and an unpredictable condo board and I don't see any reason to put my money to work there. STR returns tend to be better, but then the risk of the HOA destroying your investment becomes even higher.

Condo boards are not typically made up of investors, and do not typically have investors best interest at heart. I think that's putting it generously :).

Michael Haas · Answer

Touche @Jonathan R McLaughlin :). I do take a lot of pride in managing my tenants and keeping good relationships with our neighbors, but everyone loves an owner-occupant next door.

Jonathan R McLaughlin · Answer

@Michael Haas “ condo boards don’t have investors best interest at heart, and that’s putting it generously”

Of course, the reverse is also true :)

Ric Mittleider · Answer

Eli, I get what you are saying. in the Seattle market these days I don't see people getting those rates. I agree it is best to get it for 70% are you still finding them in your area?  when you say a 8 - 13% return are you talking cash on cash in the first year? just trying to get this conversation deeper in to the details. I hope others will chime in as well.

Fern Bacungan · Answer

I have a dear friend that purchased 3 condo's in the 2008-2009 market downturn.  She's looking like a smart cookie right now.

Condo's are like any other real estate investment and you have to analyze it as such. There is nothing wrong with condo's IMHO. But like anything else, when prices drop, condo's will likely fall steeper than a SFR.  In this low inventory market, one simply has to stay patient and disciplined with your own investing strategy. If 70% of ARV is your strategy, stick with it! Be patient and disciplined!  It's better to not buy anything if it doesn't meet your criteria rather than regret the purchase.

When the market softens and turns (we don't know if it's this year or next year), you'll be glad that you waited!

Ric Mittleider · Answer

Michael, I tend to see HOAs in a similar light as you. I do have investor friends that strictly invest in condos because the HOA covers all the structure and roof so it covers large portion of your cap ex.Are there any Condo investors here?

Eli Schwartz · Answer

Hi @Ric Mittleider

A turn key property will give you a return of about 8-13% (dont quote me on that).Vs the potential return on buying a deal is way higher if done right. Where you can even get all or most of your money out (BRRRR).

Its important is to analyze every deal thoroughly, you have to know the area, market, rent, rehab etc.

It'll depend on your risk tolerance as well.

I typically aim to be all in (purchase + rehab) at 70% ARV. Not saying that its easy to find deals, you just have to stick to your numbers. No deal is better than a bad deal.

Best of luck

What is your formula for a buy and hold condo

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