Are you in the market for to purchase a home or a condo?! As a general rule, condos decline fastest in slow market and are last to recover in a hot market. So, your holding period for a condo might be much longer for a condo and it might be harder to make it cash flow if you decide to turn it into a rental.
So, it’s wise to consider Top 6 questions before you buy a condo:
1) Appreciation: Condos appreciate very different than a house. During a slow market, Condos decline the fastest and they are the 1st property types to delcine. Our toughest REO Listings to sell in 2012 were Santa Clara condos which stayed on the market much longer than similarly priced Single Family homes. California Association of Realtors has published the data that shows the YTY% change of Homes Sales vs Condos vs Single Family Homes.
2) Financing a Condo purchase: Condo financing is subject o much tougher requirements. FHA guidelines require that the ratio of Owners to Tenants should be above 50% before they certify a condo development for financing. These limitations in turn limit the availability of financing options which makes the condos loans more expensive.
3) HOA Fees: You should read the bylaws of the Condo Association to make certain that they allocate enough funds for Reserves to manage deferred maintenance and repair items. Another criteria should be the limit on the annual rise of condo association fees. High HOA Fees will make it much harder for you to convert this condo into a cash flow rental.
4) Cost of Ownership: HOA fees alone make Condo ownership much more expensive. Depending on the size of the condo complex the HOA fees would be lower. Large complexes would be cheaper to own, but they have less resale value as well.
5) Condo Restrictions: Condo ownership comes with huge limitations imposed by the HOA on the exterior appearance which extended to interior changes as well. No alterations or remodeling can be done without prior approval from your HOA. 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.
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.