Condo units v. houses for a newbie absentee landlord

Looking at several different kinds of properties, and trying to figure out the pros and cons of each. Obviously the there’s a big difference in the prices between them, but a the total purchase prices on both are similar - 3 condo units or 1 duplex and the returns are also about the same. I am especially concerned about structural issues - termites and stuff like that. Are insurance rates very different for different types of housing?

I’m looking at properties in SC - here are some examples. Appx. 25K / condo unit - rents at about $600/month. $56K for a duplex renting for about $1K/month. I don’t mind making less money if it’s going to be less of a headache.

The condo development has it’s own management - so I wouldn’t need to find someone for that, but I’m also told that the tenants of this particular condo development are a wild mix - some working normal people, and some bad elements. If they pay their rent on time, how much does it matter?

I’ll give this a stab, except that these are not the same animal.

Condos: You have less control of the asset. Why? (This is not a complete list)

  1. Someone else controls the cost and frequency of exterior repairs and maintenance.
  2. The owner can be assessed for unexpected costs without recourse.
  3. Owners are often threatened with, and actually, fined for minor infractions of the condo rules …caused by the tenant.
  4. Condo fees are generally higher than the costs for the same services you would incur on a house.
  5. You have zero control over the complex itself (unlike conventional apartment ownership).
  6. If you have lots of foreclosures and/or delinquencies in the complex, and you want to sell, your buyers won’t qualify for FHA loans.
  7. Condos are profoundly more vulnerable to market fluctuations than either homes or multifamily income property.
  8. ???

Houses: You have 100% control of the asset, inside and out.

There’s a reason you can buy a condo for 25k and rent it for the amount you’ve been quoted. NOBODY want those condos. Why is that? You need to find out why, or you could be wishing you were a ‘former condo owner’ in a very short time.

That all sad,

  1. If there are very few rentals in the complex
  2. There is a good management history
  3. The HOA fees are stable
  4. The operation of the condo is solvent
  5. You find a bargain…

Then maybe it’s still a good investment.

Otherwise, I see people buying condos cheap and then not realizing all the downsides …including the fact that condos are the first to drop in value when the market goes south, and the last to climb when the market rebounds. Either way they’re screwed when they don’t buy and sell these things at the right time.

Hope that helps… :banghead

Very helpful! Thanks!

Here’s a couple other things to consider… When looking at a multi-unit property (and I’m speaking mostly to duplexes up to a 6-8 unit building), you need to see what the owner is responsible for with regard to utilities. There are small multi buildings out there where the owner pays all the electric, water, gas because there is only one meter for that service coming into the property. I would NEVER pay for electric or gas service for a building I own. Tenants could easily crank the heat or a/c and cost you a ton. If you find a good deal on a building without separate meters, check to see how much it will cost to split them and install separate meters.
Also consider your buyer pool when you go to sell the building will be much smaller for a multi. Not everyone wants to be a LL. If you buy a 4-plex and end up hating it, it could take you awhile to sell or you may have to really discount your price to get out of it.

If you are looking for less of a headache than being an absentee landlord may not be the right direction for you. As a landlord (present or not) you are ultimately responsible for the property. If any problems arise from the property any officials will be looking to you first.

If you find that being a landlord is still the direction you want to go into, the recommendation would be to go with the condo units that already have a property manager in place. Condos are unique in real estate in that you don’t have to purchase insurance to cover your unit because the master policy held by the owner and paid for by the individual unit owners in the form of condo fees covers your investment. Additionally if there are any structural issues that is also covered by the owner. In the duplex you would have to carry an additional insurance policy as well as be responsible for all repairs to the property. Additionally you would have the cost of identifying a property management company to care for the property.

If you were looking for the least amount of work, the recommendation would be to go with the condo unit.

I agree with what you’re saying. And I can tell you right now from what I was looking at just about an hour ago that the prices on condos went SOUTH big time. My area went south in general but condos were worse. Looking at condos earlier today that were about $90k in the golden age of 2006-2008. Today, $37k (not that I’d pay them that of course). Saw pics of the inside, very nice. I’ve driven by many times, I know the area well…nice on the outside. Rent easily for $900. But like the above says owners vs renters can be a factor. One thing that I think caused the drop in this case was an investor buy-in when foreclosures started to happen. Current split is 51/29 OO vs investor (only 63.8% owner occupied) . No FHA money means good luck selling to people that are buying in that price range. All I can say is be prepared for a difficult sell later. If you want a quick out when you need to get out of it don’t count on a straight up sale. Be prepared to lease option, hold a note, etc. And of course let’s not forget the fact that when the economy sucks the average person buying into a cheap complex also has shitty credit due to job losses, reduction in payroll hours, etc. So there are many factors working against you. I’m not saying don’t do it, but don’t go in blind. Know all of the issues up front, price them all into your offer. It has this, this and this wrong…so I’m offering this.