One of the first directives I learned through Phill Grove’s REvolution online learning product was to avoid condominiums at all cost.  This was followed by so many others warning people away from condominiums as a buy-rehab-sell business.  Being someone that likes to find out for myself, I took their comments under advice and did my own research.  This is what I’ve found…

Condominiums CAN be Profitable

Yes they can.  I remember stumbling across my first foreclosed condo in Bakersfield.  I happily purchased that property for $45,000, put in about $10,000 in upgrades and then sold it for $95,000.  Not a bad little profit there for me, and I was thankful that I wasn’t plagued with investor competition, since so many investors don’t like condos.

Just like I have said in my field trips – if you can get a stable property for 40% of After Repair Costs (ARV), you can pretty much handle surprises that come up.  And YES…there ARE surprises.

And the Risks?

There are PLENTY of risks.  So many people just say “avoid condos” and don’t really say why.  However, as a savvy real estate investor and business person, you learn how to assess risks in business and know when the risks are insurmountable and when they are minor, and how the profit potential compares with the risk.

1. One thing you have NO control over is the Condominium Association.
2. FHA has very strict rules on loaning to Condominiums based on their financial criteria
3. Special Assessments can arise any time (SURPRISE!)
4. Current litigation with the Association COULD be a deal killer when you resell.
5. Oh, and they have to like you.  (Often there is an approval process.)
6. Each state has their own laws about collecting previous owner’s past due assessments.  YES, you could be responsible for the arrears.  Another surprise.
7. And there are even more risks that I’m still not aware of – so don’t take this as a learning lesson in Condo investing, take it as I usually present myself, I share as I learn.

#1. You have NO control over the Condominium Association

You can view condominium associations as the evil bureaucratic group that interferes with your ability to get things done.  The reality, as a rehabbing investor, is the association is an incredible wealth of knowledge and can be your best ally.

Some of the associations require you be approved as a buyer.  This can be good and can be bad.  First, the good. Many require a personal either face to face or telephone interview with you.  Most of the time it’s to make sure you understand the rules of the association.  What is most important is their “WHY” they require this.  When you learn their “WHY”, you can easily deflect their fears and make sure they are comfortable knowing that you respect them and the community.  I love this part because in my experience I’ve developed a helpful friendship, found great local resources.  I want the association to LOVE me.  I want them to know what I do and I am there to increase the value of one of their units, and I’m happy to get any insider information on deals coming in the future.

For the condominiums I’ve purchased, most love me because I respect their organization, will not cause trouble, can communicate effectively with them and they have a level of confidence that I would fit in nicely in their community.  In fact, one association tried really hard to solicit me making a move out there.  It was tempting, but no…I like living here in Austin

Now for the bad news.  They will run a background check on you, and often check your credit score.  Even if you have  good credit score, each inquiry lowers your score a few points.  It’s one of those things you have to know going into this.  Do you have enough room in your credit score to get a few dings?  Is it worth the profits?  For me, the answer is yes.  At least so far.  Usually explaining what you are doing to a lender or future associations wanting to approve you will solve the issue.  However, if you absolutely have to keep your credit score at a certain level, avoid condos.

This is the first part of a series of blog posts on Condominium Investments.  I appreciate any comments or experiences you’ve had.  Please comment below.