1) Appreciation: Condos always depreciate faster in a declining market and are the last type of property to rise in a improving market. California Association of Realtors has published the data that shows the YTY% change of Homes Sales vs Condos vs Single Family Homes.
2) Cost of Ownership: Condo owners are subject to Home Owner’s Associations which will be a drain on your cash flow if you ever decided to use the house. Depending on the size of the condo complex the HOA fees would be lower.
3) Financing: Condo financing is subject o much tougher requirements. FHA guidelines now require that the ratio of owners to tenants should be above 50% before they are qualified for financing. This limits the availability of financing options which makes the condos less marketable when it’s time for you to sell it.
4) HOA Management Fee: As a condo buyer you should examine the bylaws of the Condo Association to make certain that they allocate enough funds for Reserves to manage un-foreseen expenses that could lead to a jump in the HOA fees. Another criteria should be the limit on the annual rise of condo association fees. You should also make certain that no maintenance repairs that have been delayed due to lack of funding since this could mean a huge rise in association fees.
5) Condo Restrictions: Condo ownership comes with huge limitations imposed by the HOA on the exterior appearance which extended to interior changes as well. For instance if you wanted to divide a large bedroom to 2, you would need to seek approval from your HOA board before you can make any alterations. These HOA restrictions can even impact your marketing campaigns to sell your property since MOST HOAs will not permit FOR SALE signs to be posted on the exterior walls or doors of your unit. These could seriously limit your ability to market your Condo specially if the complex is large and hard to navigate.
Finally, the best way to judge the success of a condo life style is to visit a few of the Residents to inquire about their experience at the Condo Development and the management of the Associations.
Contact Us if you have any questions about your condo purchase. As investors ourselves, we have walked away from some condo deals that appears too good to be true at the time of purchase only to discover it’s very hard to make them cash flow in the long run.