I'm hoping to hear if my plan is a good one or if I should try another track. I've been thinking that a condo would make a good 1st purchase because of the cost to get in is low and I have limited funds to start. I have enough for 20% down if I stay under 40k. Plan on occupying at 1st to save $$ for next purchase then convert to rental and keep doing this.
I know that 1ngle family homes make better rentals but don't have the resources for a rehab project yet. I have never owned a condo and don't know if they make good rentals.
Beware of HOA fees and assessments. The HOA probably has rules about what percentage of the units can be rented out. You’ll also have no control of your tenant’s neighbors.
Not all SFH have to be rehab projects.
Condos can be a good purchase…here are a couple things to look at though:
I stick to the 2% rule in all of my purchases. So that condo would need to rent for $800 a month (that’s 2% of the $40k per month) before I would consider buying it
the HOA fees would need to be reasonable, as the previous poster said. Some condos in Dallas have HOA fees of $100 a month, and some $300 or more. I would consider the prior, but never the latter, as that eats into the cashflow too much
You need to “buy cheap” in real estate, as someday you will want or need to sell the property. Condo property values can be hard to assess properly, especially in this down market. A good rule of thumb is to never pay more than 70% of what a property is worth. So if you buy the condo for $40,000…it should be worth $52,000. I like deals that are cheaper than 70% of what a property is worth, but that’s my preference and my minimum…and it is a guaranteed way to win.
Thanks for the input, good points and I’m glad to hear no “WARNING: STAY AWAY”, but I will proceed with caution with the HOAs. Most of the SFHs I’m seeing are in need of rehab or in areas I wouldn’t consider living in this price range. I know I am only scratching the surface as I am only seeing MLS listings right now. Any good advice on getting started finding the “GOOD” stuff?
Motivatedceo, Thanks for the “2% and 70%” rules. Good guides to profit, I will put them to good use.
Most of the “good money” to be made in the rental housing business is with lower and middle income homes. So just because you find a house that you wouldn’t dare live in, someone else out there might love it. There is a huge demand for affordable housing … which basically means there is a big demand for any house, townhome, mobile home, condo, whatever that rents cheaply.
Where do you find good deals? The easiest way to find real estate is on the MLS (see www.ziprealty.com to browse the MLS for free), but these are not always good deals. However sometimes they are. This is about the only tool realtors use to buy & sell houses, so if you deal with a realtor, don’t expect them to find many if any deals beyond what you can find yourself by browsing the MLS for free.
I personally have had the best results by sending targeted mail/letters to houses in certain neighborhoods that I want to invest in, and in turn I get calls from potential sellers. I target specific streets even. When I get a call…I will then listen to what they have for sale, and why they are getting rid of the property, and then I give them an offer. Sometimes they say “no way, that price is way to low”…sometimes they say “that sounds good” and we do the deal.
The process takes time & practice like anything else in life.
Since you are new…I would highly recommend you use the MLS yourself in the beginning, and when you find a few properties you like that are in your price range, call up a realtor and have them show you some rental prices for that neighborhood and have them show you a few homes too. If you find one that works mathematically - that it will make you a profit … that is the most important thing … then make an offer on that property through the realtor.
The next time around you can look into making offers & doing deals WITHOUT a realtor. That can put a few extra bucks in your pocket by being able to drive down the sellers price a little more since they are not paying a buyer’s agent commission.
Motivatedceo, I will broaden my search based on your advice. There is in fact a 3/1, SFH I saw on “ZipRealty”, what a great source. So much more info than “Realtor.com”. I’ve inquired by email to the Realtor, a big 1st step for me.
You might want to choose in area that is not oversupplied with condos though and if you buy in a building with lots of similar condos, try and find one that stands out or some advantage that seperates it from the others.
This will help with re-sale value, if and when you ever decide to sell it.
A condo unit is a good investment.
Check out the condo’s amenities and check what are the other expenses you might incur
besides the amount you’ll be paying for your unit. Some condos give free parking space while
others charge a condo owner for the the parking spaces… small things that you might want to
check
The main issue I have with Condo is the CONDO BOARD. Usually comprised of peopel living there that don’t really know maintenance or upkeep procedures. They suddenly decide they want to replace all the windows or tuckpoint the entire building and next thing you know, all rental income for the past 2 years just went to pay for a special assessment that you have no control over.
You’ve already received good advice here, but I’ll just add that condo values are volatile. They’re better than apartments (you ‘own’ it), but not as desirable as comparable single family homes (unless you hate mowing lawns and want to live in a 55+ community). Otherwise single family homes are what everyone else wants to rent or own.
That said, condos are practically the first investment type to lose value in a stagnant or declining market. And they’re the last to go up in value in a climbing market. So the sophisticated investor will be interested in condos at the bottom of the market, and will get rid of them at the top.
Of course peaks and valleys are usually seen after the fact by amateurs. BUT if you track the velocity of sales, interest rates, loan originations, along with sale prices in your niche, you’ll know before the amateurs what’s around the corner by at least 3 months, or more …and act accordingly. Is market timing this efficient? Not necessarily, but it’s better than being caught flat-footed like the amateurs were in 2005 and 2006…and especially in 2007…! :anon
My friend Robert Campbell offers a timing letter at realestatetiming.com that charts market trends in the major markets that I use to see where I might be interested in investing. He’s a UCLA educated economist / builder / contractor. BTW, Campbell pulled of real estate before the crash… Just saying.
So condo investing is REALLY market dependent. The more you buy the more important that you know where you are on the “hill” in market terms.
Hope this helps. BTW, market timing applies to any segment of investing, it’s just that condos can be the most susceptible to changes.
I do not know your location but I will give some advice since I live in South Florida where we have tons of condo’s.
Make sure the condo complex was not an investor complex. You want to buy in an end user complex (however even you plan to be an investor down road so tough). Reason being when the complex is loaded with investors (20% or more) and they can not rent the units they stop paying the Condo Asso Fees. Guess what, you now get hit with an assessment that MUST be paid based on the terms given. DO not pay and you have more problems.
So you have little control over these extra fees you get hit with.
Now a question comes up. Do you want to live in a complex that has you put money into reserves for roofs, pool, etc. Some hate the idea because they do not plan to live there long enough so figure it is a waste of money. Others like it because they pray for no assessment when the time comes or low ones. In Fl, a roof fund is only good for that unless a majority vote is casted. It is very complicated to use funds put away for one item to fund something else. Just the law.
As for locations, look to be close to schools or major shopping as it maybe lower rent and people without cars. Or in a young complex with college kids and 20-30s professionals not looking for homeownership yet.
Determining whether or not a condo would make a good rental is based on local data. First analyze your local market to see what types of rentals are on the market and what the market rent is for the units. If your local market supports rentals than a condo purchase maybe a great first step.
