Are you considering buying a Condo for a buy & hold play? Many experienced investors advise that this is not a good idea due to the fact that condos are subject to Home Owners Associations, and because of this, the investor is not really in control of his/her investment because the HOA is in control of common area maintenance, exterior CAPEX and rules/fees pertaining to the complex, etc.

I have occasionally thought about ignoring this advice when I came across a cheap condo that would cash flow extremely well. 2-3% of purchase price collected in rent every month is definitely tempting and really, if a condo cash flows extremely well on paper, how bad could an HOA really be?

This is how bad it can be.

Recently a friend of mine told me a story about his father's condo investment. After a vacancy of several months hit his condo in Vegas, this man decided to fly into town for a weekend of gambling and to check up on his investment. He wasn't sure whether or not he wanted to keep it as rental, sell it, or just keep it as a weekend get away. Without contacting his on site property manager/HOA rep beforehand, he pulls up to his Condo to find a boarded up office which used to house the HOA Rep. After talking with another resident, the man finds out that the HOA/on site management company went out of business and that there had been another company operating for several months. Since he was making on time monthly payments to his bank which had been escrowing his HOA fees and allegedly paying those fees, he was quite confused as to why he hadn't been notified of this.

He finds out the address of the new company, and pays a visit. There at the new HOA office he is notified that he no longer owns his condo because it had been foreclosed on!

To make a long story short, he finds out that the new company came in and immediately raised the HOA fees. The man had been making his regular mortgage payment which included the old HOA fee amount. The new HOA company sent out notices of late/insufficient payment to the address of the condo, rather than to his address or to his bank. After X amount of notices they put a lien on the property. What is completely mystifying is that Court dates were set up without notifying him. However, his bank was notified and showed up to these hearings. Head scratching situation to say the least.

The man has now been in a legal tangle over this investment for 5 years. He continues to make his payment to his bank. He now only owes $5K on the property. His bank won't answer any questions as to how they failed to notify him of the new HOA or the court dates, due to advice of their own counsel. The man believes that the new HOA company is nothing but a thinly disguised criminal operation that forced the old HOA company out with intimidation. The problem is that according to the law, thug theories aside, the new HOA company has technically not done anything wrong, according to more than one source.

Needless to say this is costing an arm and leg to fight what is going on.   Someday he may be awarded a large settlement for this debacle, but right now it is just a costly nightmare.

Obviously this is an extreme example of what can go wrong when you invest in an out of state Condo, but it just goes to show, when you invest out of state and aren't in complete control of your investment, anything can happen.

Yikes.

@John Koster best way I look at it is, an HOA is just another entity that can tell me what I can and cannot do with my property.

I like to keep the amount of entities that can tell me what I can and cannot do with something I own to a minimum.

At the very least most people would have the county, the city, the state, federal government and maybe even your lender who can dictate what you can and cannot do. Adding another unnecessary entity to that list seems like a bad idea

HOA is basically a curse word in my book....

Not really, but master planned communities/ SFH do seem to always have reasonable HOA fees with reasonable results that residents can actually see, Condos on the other hand, can bend you over. You better enjoy that pool and gym!!!!

Don't buy a condo.

Also: don't buy a condo

but if you find the perfect deal, then of course: don't buy a condo 

Most importantly:  don't buy a condo

don't EVER buy a condo 

Thank you all for the advise and lessons learned, definitely staying away from a condo. 

I never heard of anyone escrowingntheir now payment to the bank.  Lack of basic business to not give the hoa the owner’s actual address.  If people want to use this example as a reason to never consider a condo, good for them.

@John Koster

Sorry to hear about it...

Don't buy a condo with bad HOA.

Do you know, which area/community does this condo located at in Las Vegas?

@Ran L.  I do not know where the condo was exactly.   

@Alexander Felice -  So, I have a chance to buy this condo...?

Originally posted by @Alexander Felice :

Don't buy a condo.

Also: don't buy a condo

but if you find the perfect deal, then of course: don't buy a condo 

Most importantly:  don't buy a condo

don't EVER buy a condo 

I'll play the game, buy a condo if you can have enough units to control the HOA. My clients have done this with great success.

Originally posted by @Alexander Felice:

Don't buy a condo.

Also: don't buy a condo

but if you find the perfect deal, then of course: don't buy a condo 

Most importantly:  don't buy a condo

don't EVER buy a condo 

Blanket statements are NEVER accurate.

Everything is a deal for the right price. Becoming a member of your HOA board also allows you to mitigate your risks.

I’ve done it once and scored.... but never again.

@John Koster

About 15 years ago a 300 acre farm was developed near me and they put up 10 acre SFH that were selling between $600k and 1 million. A friend of mine wanted to bid the common grounds for landscaping. A member of the HOA revealed what they were willing to pay to "knock it down" (referring to the grass). The price was ridiculously low. When I confronted him, he said the HOA was broke. They needed every dollar for road maintenance. They actually had a homeowner mowing a portion for free.

So lots of HOA's, many golf courses and numerous country clubs are hoping to make it on limited residual while offering very little in return.

Facilities are always the largest slice of the pie—nothing new.

I agree with all the replies saying that sometimes you can make money but more control equals more freedom. Renting and liquidity are much more conducive to less stress. Wholesaling and flipping a condo, sure.

Outlier situation

@Wayne Brooks . 

Some banks require escrow for the HOA dues.

And the HOA/Manager that the guy had dealt with for years had his address and communicated well enough. The new HOA/Manager for some reason did not. The owner had no idea that a new company was in charge of the property until it was too late. He was making his monthly payments with no idea that the HOA dues were raised. The owner and his lawyer suspect that this was be design, rather than by accident. In other words, a scam. Who knows? Crazy.

You have good managers and bad ones. With my PM, I deal with the condo fees (HOA) myself; so any changes are sent directly to me as the owner. I can't imagine leaving things like condo fees or property taxes (ie thing that if left unpaid can result in you losing your house). I also find it hard to believe that the court didn't send a notice to the property owner.

I'm currently selling my double digit properties include SFR, townhouse, and condo on MLS in Las Vegas. My condo has been sitting for a while, I searched other people's sold and pending properties in my area, not too many. Only one condo sold and one condo is pending from other sellers on the MLS in the past few months so far... Since only one pending condo in my area, does it mean not too many buyers are interested in it? or else reason like winter time is coming etc...?

Sorry but simply put, the whole story is not here. Lenders do not escrow condo fees...so no, he was not paying his condo fee as part of his mortgage payment. @Wayne Brooks is spot on.

It is not limited to condos but to any Hoa. I recently picked up a property that was going into an Hoa foreclosure, The owner did not respond to any of the Hoa fines and ignored them for years. It is only a $25 a month Hoa but the accumulated violations and fees accrued to $35000. BTW she had bought the home for cash from an inheritance

Second case almost same scenario owner owned home for cash and for some reason ignored his Hoa bills . The Hoa foreclosed he tried to sue but was unsuccessful. Bottom line after purchasing the home for $150,000 cash he only received $60,000 back after foreclosure and legal fees . People know they have a monthly obligation to pay their dues,just like a home ,car payment,credit card etc. A phone call, an updated address etc is a simple fix. Although their might be bad Hoa communities it foolish to label all Hoa's as bad .

@John Koster thanks for sharing, this is very informative, I appreciate it as I go along my HouseAcademy course!!

What would you do in a place like Washington DC where all they have are condos?

Not sure what you mean @Joseph Phillip ?  You must be looking at one little pocket of DC which is primarily rowhouses!?  Also, for an out-of-town investor, it can be a “plus” as condos are generally low-maintenance and the fees can be worthwhile so long as it cash flows and is in a high/demand area which will continue to appreciate!