I bought my first condo back in 2018 and it has proven to be a successful investment.
Those years have reaffirmed some valuable lessons about investing in condos.
In this article, I will share eight key lessons I have learned through my experience.
8 Lessons I Learned Investing in a Condo
My Most Important Lessons
1. Thoroughly Checking Rental Restrictions
As an investor, you have to look carefully at restrictions against rentals.
And realize that restrictions are always subject to change!
In my case, the condo I bought has certain restrictions against short term rentals. This is not a part of my long term strategy. Nevertheless, it limits what I could potentially do with the property.
Renters in my condo building can’t have pets (even though owners can) which has somewhat affected my ability to attract tenants.
Restrictions against rentals can vary greatly. Watch out for the following:
- Outright bans against rentals
- Caps on the number of rentals in the building
- Short term vs. long term rental restrictions
- Restrictions against renting out only a portion of the unit
- Extra fees for leasing a unit
- Move-in and move-out procedure restrictions
- And many more!
Remember, the rules can always change.
To mitigate against that risk, I made sure to invest in a building that had other rentals in it. This reduces the chance that the homeowners’ association will decide to ban rentals for whatever reason in the future.
But there’s still always a chance they do ban or limit them, so tread carefully!
2. Constant Risk of Special Assessments and Common Area Maintenance
Condos come with shared common areas and amenities, all of which have to be maintained.
There is always a risk of unexpected special assessments for major repairs or upgrades.
Special assessments are fees charged by the homeowners’ association in excess of regular assessments.
If an association needs cash to pay for a project, it will often raise the funds by charging a special assessment to all of its owners.
As a result, it is crucial to budget for such expenses and assess the financial health of the homeowner’s association (HOA) before investing.
I’ve had to deal with relatively small special assessments throughout my years of owning the unit. I make sure to park some money aside for capital expenditures, even if my individual unit doesn’t need much maintenance. Any special assessment charges get pulled from that budget.
3. Difficulty of Getting Certain Items Repaired or Improved in Own Unit
As a condo owner, getting certain repairs or improvements done in my own unit can be challenging.
Typically, to get work done in a condo, you’ll need approval from the homeowner’s association.
Sometimes, the restrictions on building will be very intense.
Thankfully, my condo association is fairly relaxed on interior work restrictions.
But, for more major work, the approval process can cause delays and frustration.
At the same time, sometimes an issue will be coming from another unit that I don’t really have control over. Or the issue will be from a common area element that I can’t repair myself.
For example, I had a small leak in my unit that was coming from one of the common building lines.
Since the line that needed to be repaired technically wasn’t my property, I needed to wait for a number of weeks for the association to approve a plumber that they were hiring directly.
Even though I didn’t have to pay for it, it still was annoying for my tenants who had to deal with an open ceiling in one of their hallways for weeks.
And there wasn’t really anything I could have done to speed it up.
In short, understanding the limitations and restrictions of unit rehabs beforehand helps to temper expectations.
Bonus Red Flags to Watch Out For With Condo Investing
Those are some of the most important lessons that have been reiterated since I bought that condo.
But there’s plenty more to watch out for when investing in a condo.
Here are some common red flags and things to watch out for.
4. Lack of Communication from HOA/Board
A lack of effective communication from the homeowners’ association can lead to confusion and frustration among owners.
A proactive and transparent homeowners’ association that keeps residents well-informed about important matters and addresses concerns promptly is a huge plus.
Well, at least so long as it’s not overly proactive and doesn’t become flat-out invasive.
If there are obvious problems with the building that the association should be addressing, yet nothing happens, that’s a problem.
5. High Number of Renters Compared to Owners
Even though it’s good to see some rentals in the building, it’s not necessarily a good thing to see only rentals in the building.
An imbalance between owners and renters in a condo complex can have a significant impact on the overall “pride of ownership,” specifically when it comes to common areas.
If almost all owners are absentee landlords, yet all of them share responsibility to maintain the common areas, who is going to keep on eye on those maintenance items?
It’s not always an issue, but depending on who is running the HOA, things can deteriorate fairly quickly.
I tend to look for a healthy owner-occupancy ratio to ensure that rentals won’t get outright banned but there would still be plenty of prideful owners keeping an eye on things.
6. Poorly Maintained Common Areas
The condition of common areas is a reflection of how well the property is managed.
Naturally, neglected common areas negatively affect the overall appeal and value of the property.
Your renters will notice.
So will prospective buyers if you ever want to sell.
And that will likely mean the eventual repair bills will be much higher than if things were maintained adequately over time.
Stuff needs to be maintained. It’s a matter of when and how much.
An HOA that doesn’t maintain the common areas well is one to worry about.
7. Low Cash Reserves
Insufficient cash reserves within the HOA are a major red flag.
In the event of unexpected repairs or financial challenges, a lack of reserves can lead to massive special assessments or compromises in maintaining the property.
Take a look at the HOA reserves before (and after) you buy the property.
8. Pending Lawsuits or Legal Issues
One last bonus is to keep an eye out for lawsuits or potential legal issues that would affect the HOA.
Legal disputes can cause financial strain, uncertainty, and impact the marketability of the units.
It’s best to ask about the potential risks before you buy.
Despite the challenges and risks, investing in a condo has proven to be a successful endeavor for me.
After thoroughly evaluating rental restrictions, being mindful of potential red flags, and conducting careful due diligence, condos can offer an affordable entry point into otherwise unaffordable areas.
This website, and any communication stemming from it, while hopefully informative, should not be taken as financial or legal advice. Assume all links are affiliate links. I am an Amazon affiliate.