The problem with Condos

Everything I read says to avoid buying condos as rental properties, and I can’t quite see the problem with them. What I’m looking at are condos close to campus and renting them to students. The main drawback to condos seems to be the HOA fees, and poor resale. The HOA fees I am finding are about $160-200 and cover some basic utilities such as water, and grounds/exterior maintenenance.

Has anyone either owned condos as rentals, or rented to students? What were the pluses/minuses in your exp?

Thanks for your advice.

The only way I would ever recommend buying a condo is if you can get it dirt cheap - say 5k to 20k cash for a C or D class property that is not in a war zone, has reasonable HOA fees, has a well maintained neighborhood - and rents for at least a 20% return. I know lots of people who invest in condos and townhomes, and they do very well with the above strategy.

The only exception to be the above might be a waterfront condo, and it would need to be more or less a flip that you’d sell after the market turns…e.g. buying a waterfront condo in Naples, Florida that previously sold for $1mm for $250k cash…then renting it for a few years (while probably barely breaking even) and then selling it for $500k to 750k for a killer return. Places like Naples will always be hot in the long run.

if your condo is near to any university or college, than its a good chance to get a lot of potential students who can take it on rent.
plus points
furnished home is not necessary.
large quantity of buyers available.
if you give your single story house with two bedrooms to a family, it will might generate $100-$170 per month. but you can give same condo to suppose 4 students 1t $50 you can earn more by spreading your cost.
turnout ratio is students frequently change their accommodation.
legal and moral issues are seen more in case you provide your apartment to students, frequency of legal problem like drugs and other crime is high in student class. where as their are less chances of these problems in case of family.

Thank you both-

What I’m looking at is a 2/2 1150 sq ft condo for about 150K. It is right next to Campus, and the rent seems to be about 1600-1700. Not sure about having students as tenants though, and renting in the summer may be a problem, although retired people seem to rent these for a month or two when the students are gone. The condo resale in this area has always been strong, although down a bit in the last year or two.

The homes for sale are quite a bit more, and they are quite old - 40 yrs or more. Isn’t that about the time problems start cropping up?

It doesn’t take that long for houses to need work. My house was built in 1997 and I’ve had to replace one of the central HVAC units and all of the appliances. The only one of the original appliances that didn’t have problems was the stove. There’s plenty of stuff that will wear out before a house ever sees 40-50 yrs.

Condo rentals are tricky. For starters what area are you looking to invest in the condo?

Are there many foreclosures in the complex? WHat is the OOC/Investor ratio of the units? (this needs to be disclosed by Association to the mortgage company)

What kind of equity in the unit?

Does the association have a healthy cash reserve?

Will the association allow multiple rentals to students?


Can you elaborate on why you are more selective with condos than single family homes? I understand the drawback of association fees and the risk of problems arising with the board. I’ve lived in a 1 bdr condo for the last 3 years, and have had essentially zero maintenance work. The board maintains the exterior of the building, so there is less for me to worry about. In my area (Northern VA) single family homes are expensive, and it is hard to find homes that will rent with positive cash flow. However, there are plenty of updated condos that sell for much cheaper, and will rent with positive cash flow even after accounting for HOA fees and vacancy.

I work full time at a job that pays well, so my current goal is to build supplemental income and minimize the amount of hands on work I need to put in. Since I do work full time, I want to invest close to my home, so I’m not interested in buying a cheaper place that is far away. I’m close to having enough cash to put down 20-25% cash down for an investment condo, but saving cash to put down on a SFH would take much longer.

I think it depends on the numbers. The HOA will have a greater impact during vacancy but if the property cash flows it cash flows. My first rental is a townhouse (granted, I don’t pay maintenance fees and am responsible for my own maintenance) but I have a nice cash flow from it.

Condominums and townhouses, on average, tend to go down in value over time vs standard single family homes which tend to go up in value in most parts of the United States

There are exceptions to that rule, of course. When/where? A place in the right location and/or with the right view will still be an OK investment.

  • If you are talking about something in Manhattan, New York, where virtually all the real estate is in demand and everyone lives in a high rise
  • If you have a beach front or waterfront condo with a good view
  • If youre in a place like San Francisco, New York or Hong Kong where all real estate tends to be insanely expensive; in the Dallas/Fort Worth area (where I live) that might apply to a place like the exclusive, and small suburb of Highland Park
  • If it’s in a nice high rise building in any major American city, that’s in demand and has a good view

But in Dallas, Houston, St. Louis, Chicago - an average American city that’s not necessarily on the coast and where the cost of living is somewhat normal - odds are your typical run of the mill condominium or townhome will go down in value after 10, 20 or especially 30 years or more.

Why do townhomes go down in value? It could be a whole plethora of reasons…

  • There is typically no land involved
  • Financing is harder, especially when the complex occupancy changes to where 50% or more of the units are rentals OR when we’re in a down market like we are experiencing now
  • Condos appeal primarily to singles, young couples or older folks. Families, with children, tend to like single family homes with yards. And families tend to make up the majority of your new homebuyers.
  • As neighborhoods go through a life cycle, of going from being “new” to “old”…people can smash and build a new house on a piece of land. You see that in some of the older big cities, like within Dallas (not the suburbs). With a condo, you’re just stuck with it.
  • HOA fees can get very high, and in some cases make the townhomes unaffordable to either rent OR own - in which vacant units can literally destroy the neighborhoods’ property values fast
  • Neighborhoods can be poorly maintained, especially over time if the HOA is not properly managed, which will drive down rents … which attracts the lower income folks and scares off the middle class folks

Here are a couple real life case examples…

  • A few years ago … I had a relative who bought a $65k 1/1.5 bath condo in nice middle-class suburb of Dallas for $50k, and he probably spent $10k fixing it up. It’s the nicest one in his complex for sure, which is a gated community, has a pool, is decently maintained and is probably…30 years old. Anyway, he wound up losing his job a year ago, moved out of state to get a new job and that place has been on the market for nearly a year now. He owes $50k+ on his note, and probably couldn’t sell it for $30k now. His HOA fees are $250 a month, and are likely to go up (so he thinks). His note + property taxes + HOA dues equal $750 to $800 a month, and he cannot rent it for that much, so he has chosen to sit on it for a year … and now he’s out nearly $9000, $10000 or more. And the dude probably makes $40-45k a year…and he does not even live there…so that sucks for him to say the least. If he would of put that same $50k + $10k into rehab costs into an older 3/2 single family home in the same town, he could be renting it for $1000 a month and making a profit…note that he would NOT have HOA dues on that house either!!!
  • Many, many, many people think Las Vegas is a cool place to visit and party. I love the place! There are thousands and thousands of condominiums and townhomes in Vegas…and that area…man oh man…is the absolute worst place to own a condominium, especially if you bought it a couple years ago. But it’s a great time to buy there! LOL. If you have MLS access, checkout 650 E Sahara Av #2032 Las Vegas - East Las Vegas, NV 89142. It’s 2-bedroom, 2-bath condominium that was built in 2002 - FREAKING 2002 - and is on the market for $28k. There are plenty of others like that one…and some condos are well below $10k.
  • In the most prime place in Dallas, which is Highland Park/University Park, a 75 to 100 year old house on a small lot can set you back $750k. Crazy, eh? However you CAN pickup 30 year old condominimums - even in a 15 to 20 story high rise building with great views of downtown Dallas - there for $100 to 150k sometimes. But, NEW condominiums and townhomes there can set you back $250k to $750k. What’s that tell you? Even in the best of places…you might have some appreciation, as I doubt those $100k condos sold for $100k new 30 years ago…but I am willing to bet someone who buys a $750k townhome in the HP/UP area will find in 30 years their $750k townhome is really worth $500k - the price gap is just too big.
  • I am friends with a guy who owns dozens and dozens of condominiums here in Dallas. He paid $45k+ each for them, and now no one will give him more than $15k each for them. They do generate positive cashflow, but barely, and when the market comes back in a few years…I really, really doubt he’ll ever sell them for $45k each.

Anyway…hopefully that helps you some. Condos & townhomes can be great investments, but they are far more riskier than single family homes if not purchased correctly - either very cheaply or in the correct, very niche market location.

The reason I don’t like condos is the HOA dues eating into my profits. HOA dues can be substantial and have to be paid whether condo is rented or not.

A personal experience: I got a waterfront lot a few years ago (for personal use, not investment). The HOA is now in foreclosure. All condo owners are screwed big time because there is no maintenance being done, nobody rents them and they are worried about higher monthly dues in future. But I pay just $25 per month for lawn maintenance and no more headaches for me.