Author Topic: Condos viable or SFH only?  (Read 6525 times)

Scuba Stache

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Condos viable or SFH only?
« on: March 08, 2012, 09:28:11 AM »
I am looking at taking my first step into rental property, but in my location many of the hotter rental areas are mostly condos (close to the beach). Does anybody have experience with these? How tough it is to cover HOA fees and still hit profit?

arebelspy

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Re: Condos viable or SFH only?
« Reply #1 on: March 08, 2012, 02:00:09 PM »
Run the numbers. Subtract the HOA when calculating the NOI. Figure out cap rate and see if it's worth it.

You won't get a blanket "yes" or "no" that is actually correct, cause it depends on the situation.

I personally don't care for condos, but that's largely a factor of my location. Real Estate is local. Could be worth it, depending where you are.
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salmp01

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Re: Condos viable or SFH only?
« Reply #2 on: March 08, 2012, 02:15:40 PM »
I started buying condos and town homes a few years back.  Since I have a full time job I didn’t want to have to worry about mowing the lawn and removing snow (among other things).  Just make sure you have a conversation with the association and read their rules and regulations before buying a property.  Many associations don’t allow renters so steer clear of these properties.   Like arebelspy said – run the numbers and make sure it makes sense.   Personally, I try and target a 10% return if I pay 100% cash for a condo (if I buy a place for 70k I expect to return 7k/year after all expenses).

Hope this helps!

cosmie

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Re: Condos viable or SFH only?
« Reply #3 on: March 08, 2012, 10:04:59 PM »
If you go the condo route, be very careful whom you pick as your renters. Most HOAs have the ability to slap penalties and fines on you for not following rules, with the ultimate ability to take your house from you if it gets to a certain point. That extends to the renters staying in your condo; even if they've signed the bylaws and agreed to pay any penalties for not following them, ultimate responsibility (and consequences) falls on you as the unit owner.

I'm actually moving from my current apartment into a condo this weekend, so this was drilled into me very pointedly by my new landlord. They apparently ran into a problem with this in the past and don't want a repeat; a former renter repeatedly broke bylaws regarding pool rules, parking regulations, and noise violations. The owners were clueless until they received a "final warning" to pay over $1000 in fines that had been accrued by the renters.

In regards to HOA fees, there are three ways to handle it. Charge a market value rent rate and absorb the cost of the HOA fees. This may be viable for you, if you value the services the HOA offers. Charge a rent rate and in the lease put a clause saying the tenant is responsible for the HOA fee, in the same way they're responsible for any other utility bill. This is a common (at least in my area) but deceptive method of doing it. One problem with this method is that if the tenant doesn't pay the HOA, it falls on you (along with the late fee). The easiest way of doing it is simply charge a flat rent rate which wraps in the HOA fee. That way you don't absorb the cost of the HOA, but you also don't have to depend on the tenant paying it. When advertising the unit, just be sure to mention that the monthly "rent" is inclusive of the HOA fee, and spell out all the benefits the HOA fee covers (for me, it covers lawn maintenance, trash service, salting of my driveway along with the roads, a community patrol officer, a pool, and a public clubhouse). My landlord went with the last option, of just charging an above market average rent, which seemed slightly steep to me until I inferred it included the HOA fee (another condo in the neighborhood was renting for $85 less and I didn't know why - exactly the cost of the HOA fee...)