At first blush, condos appear to be a great first step for a real estate investor to get his/her feet wet. Prices are low so cost of entry into this arena of investing is within reach to more people. Plus the homeowner’s association (HOA) takes care of the grounds and outside of the building, thus minimizing maintenance costs. Finally, setting rents can be fairly easy since there are likely other units in the community that are being rented.
But there are some other issues any savvy investor should consider before buying a condo.
First, traditionally condos are the last to go up in a rising market and the first to go down in a falling market. So timing the entry and exit points is a little more tricky than with other real estate.
Second, those pesky HOA dues can eat into the bottom line. So check them out. And check out their history. A good HOA management policy will keep dues in check, whereas poor management will result in dues inflation and special assessments.
Also check the history of special assessments. Have there been a lot? Often? Sometimes these can be indicative of poor planning or management.
Third, one of your most important checks should be the HOA financials. You need to check 3 things: 1) how many units are in arrears on their dues; 2) the total amount of income in arrears, and; 3) the percentage of the annual operating budget represented in those total arrears. These 3 items will give you an indication of the health of the community you are thinking of buying into. Making sure the community is ‘FHA approved’ can also help find qualified buyers when it is time for you to sell.
Four, the overall condition of the property should be assessed – ground; siding; parking structures; parking lots, and; roofs (if you can see them). All of these indicators will give you an idea of what you can expect in the way of future assessments.
Finally, if you get the chance, talk to some of the neighbors. Find out how active the Board (and the community) is. Take everything here with a grain of salt, particularly from disgruntled occupants. But oftentimes revealing information can be brought to light with a few simple questions.
Condos can be a great real estate investment, and a great stepping stone for the novice investor. These tips are offered not to dissuade you from investing in condos, but rather to help you make good investment choices. Best of luck.
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