Posted by Rich-CA on March 04, 2009 at 12:55:42:
to protect my investment. I didn’t have any other choice if the place wasn’t going to continue its death spiral.
Condos as cash flow plays - Posted by Kristine-CA
Posted by Kristine-CA on March 03, 2009 at 17:55:09:
Greetings all. I’ve always stayed away from condos as I’ve never had any investor
or LL buyers that were interested in buying them. I deal with many estates and
there are a fair amount of estates that end up with condos that need to be sold.
So now I’m considering keeping them for cash flow.
I have an opportunity to take one now, 100% seller financing, in a better part of
town near a college. Good rents. MH price.
What are the major pitfalls to look out for? Thanks, Kristine
Thanks all! - Posted by Kristine-CA
Posted by Kristine-CA on March 04, 2009 at 16:16:16:
Thanks for the condo cashflow primer! I’ve got plenty to look into now.
Kristine
Re: Condos as cash flow plays - Posted by Henry Melair
Posted by Henry Melair on March 04, 2009 at 15:23:20:
I’ve owned over 50 condos at one time or another and, in the brief moment I’ve had to review the comments here I think almost all the major problems but, perhaps, 2 have been mentioned. I’ll apologize in advance I’ve I didn’t notice these already cited:
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Condo associations can be sued. Check for pending suits prior to buying.
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Association boards are by nature subject to the many, many problems we humans have in terms of egos, abilities, goals, etc. Good boards and well managed associations are can be difficult to find. I’ve personally been holding back to think through the problem because I believe that foreclosures in condo associations can provide serious challenges if they become numerous. It can be years before the associations come out whole, if they do at all.
Re: Condos as cash flow plays - Posted by Tai
Posted by Tai on March 04, 2009 at 13:00:56:
I switched into college student condos 4-5 years ago.
HOA dues are higher because of damages by students to
the common area due to weekend partying. I had to pay
when the boyfriend of my tenant drove his car into the
garage gate repeatedly and was caught by security
camera. the guy’s car insurance paid for most of the
damages but I was still assessed a fine ($500) by the
HOA and my appeal was denied. cost of doing business.
but prices held up because the college location and the
stable rent. I have 3 now, and will add more if the
price is low enough.
Tai
Condos 101 - Posted by David Krulac
Posted by David Krulac on March 04, 2009 at 05:36:55:
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condo/TH come is all shapes and forms, some are good some are bad and some in between. the construction, age, location, and current condition are all important considerations.
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you need to look into the management of the condo. Two things if the management is inept it will cost you money down the road, and if they are too expensive it will cost you money now.
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you need to see what the monthly fees are? some are very high and can cut deeply into your profit.
also some fees are more comprehensive in their coverages. One place that I know the condo fee only covers the grounds not the exterior of the building. -
you need to see how many are rentals. many lenders will not lend in condo communities with more than 25% rentals. and usually the ones with more than 25% rentals are more run down, more low class and less desirable.
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you need to look at the restriction of the condo Assoc. some prohibit rentals altogether, some prohibit pets, some prohibit anyone under age 55. Read the associaiton restriction, there could well be something there that you don’t like. One place prohibited outside propane tanks and the case ended up going to court.
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look for defered maintenance or big ticket items due for repair/replacemnt like rofs, siding, parking lots etc. which could result in a special assessment. If you don’t know what that is there’s nothign special about it, believe me. Several times the condo fee was reasonable, but when it came to a big expenditure they needed a special assessment. I’ve paid special assessments for snow removal, parking lot paving, roof replacement and siding replacement. You should look at condo books to see how much reserves they have as well as history of condo fees increases and special assessments.
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amenities are aslo something to look at. A condo without a pool, tennis courts, fitness room, clubhouse, etc should have lower condo fees. Look at the amenities to see if they are in good condition or reflect deferred maintaince.
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also look at utilities included in the condo fee. Often times condo conversions have master utilities like heat and water, whereas condos built as condo has less master utilities. since the utilities are included in the condo fee, master utility building will have higher condo fees. Tenats will love aplace with heat, hot water, and cold water inlcuded in their rent, but as the owner you need to be sure that those costs are not exorbinant.
Started with condos and have 2 now - Posted by Rich-CA
Posted by Rich-CA on March 03, 2009 at 19:18:37:
The biggest pitfall are: Homeowners Associations. In CA they can, and often do, craft rules that make it very hard to rent out. This was the immediate cause for me to sell my last CA rental (a townhouse) and got to another state.
The next would be lawsuits against the builder. Fairly common. Usually for construction defects and even if settled, the third pitfall comes into play.
Special assessments. Like if a roof needs replacing early and the reserve funds won’t cover the cost (this can also happen if they don’t periodically adjust the reserve parameters to match cost changes). Then a special assessment is levied against the units (could be hundreds, could be thousands) and these are not payable in installments.
I sat on the board of one of these HOAs where I got involved because the previous Board had tried to keep the dues down. So maintenance suffered. When the roof in your unit leaked, they dumped it on the owner’s lap for the interior damages (the law in CA says otherwise). When something needed fixing, a handyman did the work on the cheap until the complex started looking run down. Within a year of my taking over as Board Pres, we had brought maintenance up to where the complex looked nice. A Board can make or break the complex and it can happen quickly.
Since you only own airspace, the condition of the actual buildings is in the hands of others and you remain at the mercy of the vote on everything for as long as you own there.
Good summary - Posted by Rich-CA
Posted by Rich-CA on March 04, 2009 at 12:58:24:
#6 - I would add, look at the Reserve Study (its required in CA), that will tell you more about the big ticket items than the books.
#8 - read the CC&Rs. In CA it is possible for the HOA to set up rules that make it nearly impossible to rent. This has been court tested.
Re: Started with condos and have 2 now - Posted by Edwin
Posted by Edwin on March 03, 2009 at 19:36:03:
My sister had a condiminum once. She was paying a lot for maintenance, yardwork, etc, but didn’t feel she was getting full value for money paid. She could only complain to the HOA, but if they didn’t care, not much she could do.