Townhome Investing Due Diligence

2 Replies

After a day of door knocking I just placed a pre-foreclosure townhouse under contract as a Sub 2 purchase.  I've purchased SF homes in the past as part of my rental portfolio but have never purchased a townhouse.  My question is what king of due diligence should I be doing thats different from a SF home purchase? 

The following are some items I came up with so far:

  1. Rental restrictions.
  2. Number of rentals allowed and current number of rentals.
  3. Does the property qualify for FHA financing.
  4. Financial statement of HOA.
  5. Meeting minutes of HOA.
  6.  ???
  7. ???
  8. ???

I'm sure there are more so any advise would be greatly appreciated.  I have multiple exit strategies that include flipping, sell under a lease purchase option or sell using seller financing with a wrap-around mortgage.

@Dean Miller  I would add that you should review all governing rules of the association, not just the rental restrictions. And also review the legal paperwork that established the association.

Important to note that not all townhomes are condos. Some are legally described as condo associations and others could simply be attached single family homes. AND, FHA certification only applies to the condos. Attached homes cannot get FHA certification. In my area (Minnesota) both types of projects are common so you have to look at the legal description.

Regarding getting approval for conventional mortgage financing, Fannie and Freddie will only allow a loan to a buyer if the number of owner occupants is more than 50% of total number units so number of rental units should be smaller, like 40% or less.  Also, no single investor can own more than 10% of the units.  And, no more than 15% of units can be delinquent on paying fees and assessments.

See the lengthy B4-2 section of this Fannie webpage:

For an idea of all questions you will need answered by the HOA before getting a Fannie or Freddie loan, see this standardized questionnaire that was recently released by Fannie/Freddie.

In review of this data, and by giving a call to the HOA manager, you should be able to figure out if your HOA would allow conventional financing with Fannie/Freddie.

In addition, FHA certification of the condo project will increase the property value because there is a larger pool of potential buyers for a flip or down the road. IF your townhome is legally described as a condo, it really should be FHA certified, or on the path to becoming certified soon.

This link has some helpful info about FHA certification:

Note that FHA certification looks at everything Fannie and Freddie wanted and more. It looks at the amount of reserves, budgets, insurance policies, and the actual community rules.

And to check if your condo association is approved, you can confirm it here:


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