I came across a seller who wants to sell the 2 condos he owns. The information I have so far is the following:
Condo 1: Currently rented
Condo 2: Currently rented
There are some additional pieces of information that are missing at the moment, such as HOA fees and HOA rules governing rentals in the condominium complex, taxes, and insurance. From what I know about condos, the HOA fees may be the deal-breaker on an other wise potentially good deal. My real estate strategy is to buy and hold, so my main concern is cashflow.
I did some initial research and majority of the articles I have read say that condos almost do not appreciate in value. This is not a big concern for me. As I wrote earlier, I am more interested to see the property’s cashflow.
My question is if there is anyone here who has invested in condos. If yes, what should I be aware of when dealing with condos? Any underwater rocks that tend to sink the ship?
I don’t like condos because of where I live. I live in Houston Texas and people don’t live in condos here and that causes problems renting them. You can fill them up pretty readily but the clientele tends to degrade pretty fast. You may want to evaluate where you live also. Are you in a place where people actually live in condos? If not you may be buying problems that are not necessary. There are basically 2 types of residential real estate. There is single family 1-4 units surrounded by land and multifamily. 4 or more units connected to each other. Anything else is a bastardization of those 2. A condo is a single family where you own the inside of the walls of an apartment. If you are in a place that people don’t live in condos (New York, New Jersey, etc) you are ok. But if you are in a place where people live in houses and apartments and there are a scattering of condos then what you see when you buy a condo is a single family apartment. What the perspective tenant sees is an apartment.
If perspective tenants are not used to condos, what they see is an apartment but they are leasing a single family joined at the walls to other single family units. If they are thinking apartment and have a problem they will want to call the office… in a condo there is no office. They also will have complaints because the neighbor’s kid beat up their kid. In an apartment you can intervene. In a condo you can’t because you have no connection to the neighborhood bully. If the neighbor next door has roaches and they walk over to your unit you have to exterminate but can’t get to the problem because you have no control over the nasty neighbors. If the condo next door has a pit bull and he scares your tenant you can’t do anything because his landlord may be fine with it. You can’t screen the neighbors so you can’t control what type of environment your tenant will live in and the clientele tends to degrade pretty rapidly. You see where I am going? There are plusses and minuses with any type of property but with condos you get all the minuses but none of the plusses. You get none of the economies of scale you get with apartments you get none of the control you get with single family.
I see what you are saying Bluemoon06. What I forgot to put in the equation is the lack of control over the neighboring units. That can definitely pose a problem with the tenants.
The condos I am considering are located in Garland, TX, just northeast of Dalllas, and are on a lake. I figure people would be interested to live in waterfront units. I will see what information the owner provides me. I guess I should speak with a property manager to figure out what the trends are as far as renting condos.
Anyway - those can be great investments if purchased right - especially the closer to the lake you get. I saw a big one on the MLS the other day for $250k or so…but it was water front, and was abnormally large. Garland schools are so-so, but definitely better than Dallas, so that would not be a plus or a minus. But the closeness to the lake and I-30 are both big plus’s in my book…so if you can buy one right, it would be a great investment. As long as the HOA dues are low to moderate, you buy them cheap enough, they are well maintained on the outside and desirable enough to be a good long term investment (e.g. some condos in Northeast Dallas around Forest Lane would be a horrible investment because of the high HOA dues, no appreciation potential and low rents)…you should go for it.
One additional followup - I would not pay $40k or $50k for those condos over there that are not too close to the water (say any one of those condo developments that is more than 1000 feet from the lake). I think $25k cash for a 2/1 or 2/2 would be about as high as I would go, and I would prefer to pay less. More than likely the seller you are attempting to buy them from is offering them at a “retail” price. What you need to do is find some that are at a “wholesale price”…which is at 70% retail, but preferrably closer to 50% retail. Those deals can be found, but you have to dig for them. I get the all the time. What I do is target neighborhoods (lookup the owners via the appraisal district website OR pay someone to do it) with postcards offering to buy their homes for CASH (it works for townhomes, condos, mobile homes with lots, and any other sort of real estate)…and you will get a small % of callbacks. However that small % of callbacks will include people who might be in a deseperate situation - grandma died and left her condo to someone who doesn’t want it, someone moved out of town, someone lost a job and is behind on their HOA dues…and you can HELP THEM OUT by taking that condo off their hands. What is their liability becomes your asset. That is almost the only way I buy real estate these days - and man oh man it works great. The seller is happy to get that problem off his hands, and I am happy to get a good deal. It’s the best way to buy & sell real estate.
Thank you for the detailed explanation, motivatedceo!
You gave me a lot of valuable information. Unfortunately, I do not have the ability to offer all cash for the condos, but I can put a good 20% down. I am thinking that one option to bring all the cash to the table is by getting a private money loan. However, I have no such contacts.
I will have to figure something out, if I decide to go ahead with the deal.
If they are truly water front OR very close to the water, I would go ahead & consider financing them with 20% down if that’s your only option. Note that applies only IF you could get a good deal on them (not necessarily wholesale, but slightly below market) and if they are close to the water.
There are condos in Chandlers Landing in Rockwall (opposite side of the lake, in the non-gated section of Chandler’s) that range from $80k to $200k+, and they were made in the 1970s! They’re probably older than the ones you’re talking about even.
And there are newer condos just north of there (directly south of I-30 by the new Hilton hotel) that start at $200k and go on up to 400k or more, but those are a lot more flashy/fancy