HUD Condo
Saw a HUD home open to investor but it is a condo. Is this a problem for and investor. Just lookin for some pointers to watch out for since it is a condo. Do I need to find out if there are back association fees that need to be paid before. Or does all of that get rolled into the HUD purchase price.
All leins, back association fees, etc. are taken care of by HUD prior to closing.
Be careful with a condo as teh association fees can eat up any positive cash flow pretty quickly. I purchased one, and wouldn't do it again.
What will you do with the property?
A condo could be an excellent rental investment property for a long term holding, or, an excellent starter home for a first time homebuyer.
On the other hand, a condo could prove to be an unwise investment if the association management is weak, and if the complex is showing signs of deterioriation. Additionally, condo buyer might have a harder time getting conventional financing if the owner-occupied/tenant-occupied ratio falls below 51%.
A condo will not appreciate as quickly as a detached SFR. For example, in an area where I have rental condos, I have seen a 4% average appreciation rate over the past 20 years. A townhouse in the same area has had an average appreciation rate of about 7% over the past 20 years. A SFR in the same area has had an average appreciation rate of 10% over the past 20 years.
Condo Association fees do not stay constant, and special assessments are always a possibility.
I have several condos in my long term rental portfolio. I only buy in established communities where there is strong association management, where the financials show adequate replacement reserve funding, where there is a record of price appreciation over the past several years, and where there is strong rental demand for the condo.
be sure to read the Deed for any restrictions that would preclude you from selling at market value.. as in a subsidized, affordable housing unit.
Ditto for checking for any provisions in the condo docs that would restrict your ability to rent the unit.
That 51% owner occupied ratio also applies to FHA loans. FHA won't finance a loan to purchase in a condo community that has less than 51% owner occupancy. Found this out the hard way.
I just purchased a condo. It was a foreclosure and so cheap (which made the high association fee seem manageable) I couldn't let it pass by. I will use it as a rental at least for a year or two (or longer if it seems worthy). I normally would prefer at least a duplex so that rent would come in from one or the other, if not both. This is my first "single" rental.
Purchasing a condo for investment is always subject to the above mentioned concerns, but if the mortgage + property tax + Association fee is less than the average rental comp for the area then it may be a worthwhile investment considering the following:
A master hazard insurance policy is usually carried by the Association, and it is considered part of the monthly assessment fee. A Condo owner can elect and should probably carry additional condo insurance which is similar renters insurance and is less costly than a full hazard policy. It protects personal possessions and the replacement of the interior of the unit. The Insurance company's usually include in the Master Hazard Policy repalcement costs upto the wall studs. So in the event replacement was necessary the Owner's policy would pick-up from the studs inward + possessions.
Associations pay for the major exterior expenses, and if the Association is well managed this probably won't require a special assessment from the Owner's, or it will be nominal, and can usually be paid monthly with your assessment. When you consider if it were a single family home you would be directly responsible for all repairs anyway, so a special assessment for repairs is just the same requirement to owning real property. Meaning, there will always be costs for repairs when you hold real estate.
If you are purchasing with significant equity -- profit is always good and is where you find it!
Good Luck 2 U