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I guess the OP wouldn't have paid the 420K it sold for in April 2006, because he couldn't afford it. Then it just wouldn't have been his kind of people 37 months later, when it sold for 35K in May 2009. However, if he had, he could of been the one to sell it for 120K in April of this year (as it did), and buy the Joisey condo for 125K, but he wouldn't have been among his type of people, because he would have only had 35-40K in it (and zero mortgage) if he parlayed his sale.
Do I really need to show you examples like this in the DC area?
Before you proceed, ask for and review the association's financial statements for the past 2-3 years. You need to understand operating costs versus reserves.
Find out if the association has had a reserve study done, how long ago and what percentage are reserves funded.
Does the assessment include a Special Assessment? Are there any plans to impose a Special Assessment?
The amount of the monthly assessment and value of the reserves varies association to association. And association with $25,000 in reserves that is 95% funded is in a better position than an association with $1MM in reserves that is only 40% funded.
Typically condos aren't the best type of property for investment. First off do you know if they allow you to rent? Some condos won't allow you to rent. Others will only allow you to if a certain % of units are owner occupied, if it's over the limit you can't rent.
Also, condos appreciate in value slower than TH and SFH and your also paying associatin dues which aren't tax deductable and are a complete waste of money in my opinion.
I was in your situation a few years back. I bought a Townhome 3 bed, 2 bath. I had two friends move in with me, charged them $400 a month which is cheaper than rent in my area shoudl they rent their own places plus at that number they covered my entire mortgage. They lived iwht me for 3-4 years so thats $28,800 they paid me over the course of that time that I wasn't having to pay my mortgage.
I now have the place rented for 2 years to a family and am making $450 a month over what my mortage is.
I'd recommend doing a townhome with an association with low dues.
i've noticed condos appreciate at the same pace or even more quickly than TH and single families. The owner occupancy % limit can be an obstacle at times.
whether a condo makes a good investment depends on the calculations....it's all about running numbers. i'm netting around 900/month after condo fee, insurance, and prop taxes. i carry no mortgage on it. it's just a 1 BR going for 1400 that i picked up for 160k. so around here, the prop taxes and insurance are low. maintenance costs are also lower for a condo vs. a TH or single family - no lawn, no trees, no exterior walls, roof, gutter, driveway pavement, etc to worry about. it's essentially the hvac system and plumbing that i have to worry about (and in some condos the condo/hoa covers some of that).
i've noticed condos appreciate at the same pace or even more quickly than TH and single families. The owner occupancy % limit can be an obstacle at times.
whether a condo makes a good investment depends on the calculations....it's all about running numbers. i'm netting around 900/month after condo fee, insurance, and prop taxes. i carry no mortgage on it. it's just a 1 BR going for 1400 that i picked up for 160k. so around here, the prop taxes and insurance are low. maintenance costs are also lower for a condo vs. a TH or single family - no lawn, no trees, no exterior walls, roof, gutter, driveway pavement, etc to worry about. it's essentially the hvac system and plumbing that i have to worry about (and in some condos the condo/hoa covers some of that).
I think statistically and historically speaking SFH appreciate faster than condos. Maybe that's not what you noticed in your area or with your place but if I'm not mistkaen it's a fact.
I'm not saying a condo can't be a good investment but condo dues tend to be higher than townhome association fees and they take care of all your exterior maintenance, lawn, snow, siding, roof, so all your responsible for is your kitchen appliacnes and indoor stuff which is abou the same as a condo although you are responsible for your own heating and cooling in a townhome so with a townhome again it's about the same thing hvac and plumbing they have to worry about but I think townhomes appeal to alot more people than condos. A family can live in a townhome, a couple can live in a townhome and its still small enough and affordable enough a single person can live in a townhome. I think a townhome is kinda the best of both worlds between a condo and a SFH.
As far as costs of maintenance and ownership. If the OP is gonna pay $400 a month for condo fees after a year that's $4800. Even in a single family home say my AC goes out maybe on a large home that costs me $2800, maybe my heating goes out the same year and I have to pay $1700 for that, that comes to $4500 which is still cheaper than paying the association fees and I'm not gonna have to worry about my hvac for another 10 years minimum where as the condo owner is still gonna be paying another $4800 next year.
Understand what the HOA covers, some people say it is a waste of money because it is not deductible, mine covers water and general maintenance. In 13 years, I've never had a special assessment. The HOA can be good if the fee go towards saving for typical repairs like new roof, external painting, recoating the driveways, pool and jacuzzi heating and maintenance. When the roof has to get repaired , the same roof is covering 3 units,( 3 stories), that roof repair is 1/3 of the cost per unit. My HOA is about $260 a month.
On the other hand , I know of a complex with $500 and $700 HOA fees, their special assessment to do earthquake repairs, the assessment goes to pay back a loan taken to do the repairs. The HOA also might pay people to be on site so you can call someone to change your light blub.
I'm not oppose to Multifamily but know the local laws, especially if there is rent control.
People also say that when prices drop, condos fall the most, if Condos do fall the most , wouldn't they appreciate the most percentage wise too.
The OP has already stated that he doesn't want a SFR due to price and cost. The condo might just be a good vehicle to start developing a larger down payment so he can buy a nicer multiunit rather than a dumpy one. Also FHA MI is pretty high, it will make a 4 % loan feel more like a 6% loan
Last edited by thelopez2; 11-06-2013 at 04:01 PM..
As far as costs of maintenance and ownership. If the OP is gonna pay $400 a month for condo fees after a year that's $4800. Even in a single family home say my AC goes out maybe on a large home that costs me $2800, maybe my heating goes out the same year and I have to pay $1700 for that, that comes to $4500 which is still cheaper than paying the association fees and I'm not gonna have to worry about my hvac for another 10 years minimum where as the condo owner is still gonna be paying another $4800 next year.
What if they only had to pay $210 as originally posted. What if it also covered their water and trash bill and heating of the hot tub.
If the plan is to make it a rental, don't buy a rental with high carrying cost because it's lost money when it is not occupied. The formula I use for my rental is at least 10% of cash value in return. If I am putting in $125K cash, I would want to see around $1200/month rent times 10. I use the remainder 2 months for tax, insurance, etc.
I avoid place with high taxes and reoccurring cost because the 2 months would never be enough and if the rental sits emptied, I will be losing money every month.
For a $125K property, if OP is putting down $20K down payment, can he see at least $2000 net each year? If not, it will not make a good rental. If it's the purchase is for living with no plan to rent, it's not a bad starter home.
Just remember, just because you can rent it doesn't always mean you should.
I have considered this, but I am not sure I could get a mortgage. You are looking at a $250,000+ pricetag with 7-12 thousand in taxes around here.
Sure, it will be more expensive to buy a multifamily than a condo. However, you get to count 75% of the rent(s) of the other unit(s) (the units you don't plan on living in) as income to help you qualify for the mortgage. For example, if you find a triplex for $300,000 and two of the units rent for $900 each, then you get to count $1,350 as income when you go to qualify for a mortgage (2 * 900 * .75 = 1350). That's in addition to your personal income. Talk to a mortgage broker to see what your options are. Heck, talk to a few of them if you need to.
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If you can swing it, the smartest move by far is to buy a multifamily with at least one vacant unit (that you're going to live in). You get tax benefits, you live for free while the tenants pay the mortgage, when you get married you and your wife live there, then eventually you move out to your single family home in the nearby area with good schools, and you keep the multifamily as a rental unit. Far better than buying a condo, with its HOA/maintenance fees. If you can buy a two family with two 2BR units, you could even have a roommate with you in the unit you live in, to reduce the cost. I cannot overemphasize how much better this is than buying a condo.
I completely agree with this. You can get a great investment for only a little down payment, lock in the lower interest rate since it's owner occupied, then buy yourself a house in a few years and keep the investment for extra income. This is definitely the best option for a first time buyer.
Try this formula: Take 40% of rental income for hoa, maintenance, marketing, vacancies, and taxes. Take the other 60% and subtract principle and interest. What's left (of the 60%) is your positive flow. If the 40% won't cover the expenses; don't buy it, and it should leave you enough to build nice reserve funds. Taught to me by an Australian accountant, who tries to discourage her clients from investing in rentals that don't flow.
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