Personally, and I ALWAYS catch flak for this, I wouldnt buy a condo, period. Always the first to drop and the last to increase plus you dont have total control. There are exceptions. If the units were $250,000 and are now $50,000 it may be worth a look. STUDY the project and the local economy well before thinking about a condo. Of course this entire website is designed to hel;p real estate people get your business but I dont feel like its an advertisement to tell you that in this case---rely on a local professional for this more than any other type of real estate purchasing. Wish I were a CAR member again. Best one in the country.
All good info, but owner concentration (the number of units any one entity owns) needs to be 10% or less. So if you are in a smaller complex of 20 units, and you owned 2 of them, you'd own 10% of the units. Lenders generally want to see LESS than 10%. This means anyone who wants to sell will be limited to cash buyers, who generally offer less, and buyers with the rare lender who'll lend on it. More cash buyers usually means more renters, and renters generally don't take the care that owners do, which can lower values, and again, affect the loans buyers can get. Lenders don't like to see below 50% owner occupancy.
On the pro side, it's best to own a rental close to where you live. Just do your homework as far as market rents go. There are lots of resources online for landlords, or you can hire a property manager, who'll generally charge 10% of the rent. If the unit is already rented, you can request the lease and/or rent receipts in escrow, or incorporate that into your offer. You can also ask for the expense reports.
Let me know if you have any other questions!
There are MANY things to be aware of in this situation:
1-Making sure the unit is in good condition by having a building inspector take a thorough look, be careful who you hire! Did you know that CA has very loose rules for who can call themselves a "home inspector"? So make sure who you choose one that has the right experience to do the job and protect your money.
2-Have an EXPERIENCED real estate agent look at the recent sales in the complex over the past year...careful analysis of the condition and amenities are important to ensure you are not paying too much. You may be surprised at what an in depth investigation will find.
3-If you plan on renting the unit out, look at the going rate for rents in the area so that you make sure the investment is sound and will bring good returns. Think about vacancy rates (usually 10% or less - much less in this market as the rental market is HOT, maintenance costs, management fees (if any - craigslist is great for finding great renters and free)
4-Of course a solid title report to make sure the property is fee of any encumbrances, liens, etc.
5-Make sure you get the proper disclosures from the seller...they can alert you to defects and problems that could haunt you in the future.
6-If the property is currently listed with a Realtor...make sure you have your own COMPETENT and EXPERIENCED Realtor to represent your interests. A good agent should be able to get you a good deal, protect your interest, advise you well and most importantly make the process easier by establishing good relationships with not only you but the seller's and seller's agent. A smooth transaction is the best transaction....no Realtor ego should hamper your ability to get the best deal!
7-If the property is not listed with a Realtor....make sure you have your own COMPETENT and EXPERIENCED Realtor to represent your interests. :) Unless you are well versed in real estate transactions (doing several per year) you will want to make sure no stone goes unturned as you plan to plunk down your hard earned cash!
8-If you plan to finance the property make sure you shop around for the best rates...get referrals for trusted lenders from friends and pros in the real estate industry....and then shop them all, they will usually try to beat each others prices and it works out great for you!
Hope this helps!
Then there's the law of diversity, which I first learned with financial investments. Do you really want to put all your eggs in one basket? If, let's say, there is legal action on the HOA, or a high assessment, this would devalue both your properties instead of just one.
I know Pacific Beach well and would be delighted to help you sort things out personally. Feel free to give me a call, 619-379-8616
Yes, it is generally better if the owner occupancy rate is high. Since you currently live in the complex, I'd think you'd be aware of any issues, but I'd double check to insure the HOA is healthy (strong board, healthy reserves, no pending litigation issues that could lead to a special assessment and/or increased HOA dues.). Also, double check to make sure the HOA allows you to rent it out and/or if there are any restrictions (some may make you live there for a period of time before renting out.)
As far as the unit itself, the potential downside is not being diversified since you will now own two places in the same complex and that exposes you somewhat. On the flip side, you will be able to keep a close eye on it. Generally, I would encourage a 2 bedroom place to open up your potential renters and also when you ultimately resell the place. Even a single person prefers having the extra room for a guest/potential child or an office.
Having said all the above, the key is whether this is really a sound investment. Have you looked at the gross margin multiplier rate, capitalization rates, net operating income,et.al.? Make sure the numbers you use are accurate as the saying goes, "garbage in equals garbage out." I believe real estate, if done correctly, provides tremendous opportunity and it's a great mindset to have.
Should you seek additional insight, feel free to reach out to me.
Chad Basinger REALTOR, CPA, CFP
The benefits are that you know the building, the HOA and obviously see the value of living there. The main con's are you would have all your real estate eggs in one basket. If the values of the units in the building were to go down, or the building had major issues beyond what the HOA had anticipated, you would be in for a double dose.
The real estate values are projected to keep increasing in San Diego.
The rates are amazing low.
Just keep in mind that if you're not able to manage it yourself you are looking a paying a service such as mine a minimum of 5.0% of the gross rents.
My 17th year helping people with their real estate needs!
So, take a look at the owner occupancy ratio now and go from there. Your HOA board should be able to tell you what it is. If you are a very small complex it is more important that if you are in a huge complex with a strong current ratio.