Most of all I suggest buying a single family home over a condo though, they seem to appreciate and rent out faster than a condo/town home. At least in my experiance.
Good luck to you.
1. Rather than age, more important is condition of the complex, it must be kept up. Note: HOA reserves must also be adequate.
2. Location is even more with condos (access to mass transit, shopping, entertainment, etc.)
3. I would need to buy at the right price. (There are some very good bargains right now.)
4. Related to #3, it would need to cashflow immediately, I would not trust it to to appreciate in the next few years. Note: cashflow after considering mortgage, taxes, insurance, HOA fees and vacany rates, and maintenance costs.
5. Related to #1 and 2, it would need to in the right condition and area to attract renters. (Near college for students, evening hot spots for an younger crowd, or amenties for an older crowd. In other words know the type of renter you want and understand, buy for that renter.
Good luck, I believe investment in real estate is the best investment you can make today. Just be smart about it, align yourself with the right team to help you, and keep getting informed as you are doing know.
Dave Sachleben, ABR, GRI, E-Pro
In many ways, buying a condo to be a rental unit is no different than buying a detached, single family home.
Add up the costs - all of them, including maintenance, property management, HOA, a set-aside for long-term maintenance, a cushion for miscellaneous, as well as the monthly mortgage, and see where you are. Will you be able to rent the unit for more than it's going to cost?
If the answer is yes, even by only a small margin, then you've passed the first test. Once you add in the tax advantages of owning rental property, you should be in very good shape.
Sometimes though, even if the calculation leaves you upside down a bit, you might be ok after taxes.
I once read (I apologize that I don't remember who to give credit to for this...) that a good rule of thumb is if you can buy a rental property that will rent for 1% of the purchase price, it's almost impossible to lose money. In other words, if you pay $100,000 and can rent it for $1000 per month - you're good to go. Until about two years ago, this equation didn't work anywhere in Denver and nothing was even close. As recently as about 18 months ago though, I saw many properties where it did work, so we're at an interesting time to be buying.
As for the HOA costs specifically, you're probably right, in general. I'm not sure there's a 'plan' for them to rise and rise as you describe, but that's probably the reality. It takes each development a little while to really understand their true costs as the property transitions from developer to HOA-direct managent. Also, different HOA's have different philosophies in terms of things like how much they want to set aside for long-term maintenance - new boilers and roofs, and pools, etc. Very conservative HOA's set aside much more for these things, and that's reflected in the monthly cost, but the advantage is that 'special assessments' are much less likely.
So - in my opinion, the best plan for you would be to find a bank-owned unit in a well-managed, existing development at least 3 to 5 years old, which has very little history of such units. Or maybe a unit which is quite a bit older that you can update a lot. Updating a condo - top to bottom - is much less expensive than doing the same on a house, so the return can be higher. This should allow you to buy low, hold, and sell for maximum return on investment, but all the while having very predictable costs.
The first thing to consider is the strength and viability of the HOA. You can get that information from the Management Co for the development. in that packet of information will be the budget, meeting notes, percent of homeowners who are current on paying their dues, etc. Of course, you will also need to know how much the rents are in the development. I would also be concerned to some degree about the recent appreciation or depreciation in the area as you consider the eventual sale of the condo down the road. With that in mind, I would also want to know about FHA approval and certification for the HOA you are purchasing in.
Robert McGuire ASR
Your Castle Real Estate
Direct - 303-669-1246
All 3 answers are excellent. All have something different I didn't think about. I like the info on 1% rent to price ratio, cash flow analysis and advice on talking to Prop mgrs. Great!
I agree single family homes are better investment. My thought was living in a condo myself (since I like condo living) for a couple of years and then renting the same out after that. Also with a condo, I won't have to worry about exterior maintenance. But it does sound bad logic from investment perspective at least in Denver area.
Kurt, I can't do FHA because I just did FHA on a single family home I bought earlier this year.
I am probably going to back out of purchasing a condo or put it on a back burner. :(