Same muncipality 3bedroom/1.5bath SFH and 3bedroom 2.5bath TH condo. TH sold new in 1976 for $34,900, sold 1991 for $45,000 and sold late 1998 for $65,000.
It had central air, dishwasher and fireplace which SFH did not. And the TH was 1,650 sqft while the SFH was 1,250 sqft.
Same local, same market conditions and therefore should be same appreciation right?
SFH sold new 1958 for $13,900, sold 1968 for $16,900, sold 1975 for $27,000 sold 1999 for $100,000.
From 1975 to 1999 the SFH jumped from $27,000 to $100,000 while from 1976 to 1998 the TH jumped from $34,900 to $65,000.
I think you’re right, Bill Gatten, that in general you would think that SFH vs condo same appreciation in same locale, but I don’t think so. Perhaps this real example is not typical, but its what happened. The SFH wasn’t over improved either. When sold in 1999 it had the original 1958 furnace and the same roof as in 1975, and still didn’t have central air nor a dishwasher.
I’ve never disagreed with Bill Gatten, and I’m so ashamed.
David
I have been reading up on REI for the past few years, I currently own a TH and am in process of purchasing a SFH for rental. Although I have read quite a few books, I have not really found much on Condos. What is your opinion on Purchasing Condos for Rental purposes? I am trying to decied if it would be beneficial to start purchasing TH or Condos for my real estate ventures… Any advice would be helpful.
In some way, shape, or form you are still responsible for your tenants. - Posted by SusanL.–FL
Posted by SusanL.–FL on February 17, 2000 at 08:40:35:
I’ve been both routes: SFH and condos. I prefer the C/B SFH.
Several years back I was between tenants on my condo and decided to let a friend and his buddy use it for a week. My friend was a paraplegic (a result of a fraternity hazing prank). His friend had to carry him and his wheelchair up and down the stairs.
Well! As (my) luck would have it, those boys turned that community upside down and inside out! Wild parties all night long, drinking, drugs, and skipped out on a large bar tab at the clubhouse!
Love:
1 no exterior maintenance, no grass cutting, no snow shoveling, no outside painting etc. My rental TH had new siding and roof put on by association.
2. easy to rent, tenants like the no outside responsibilities.
3. newer than many SFH and have newer amenities like central air, fireplace, dishwasher, disposal, even trash compactor.
4. should be positive cash flow as rents are high compared to purchase price.
Hate
harder to sell, many people still prefer SFH, which are still affordable here.
association fee can be high. they are not as efficient with the expense dollars as i am, no brag just fact! i probably would not have replaced either roof or siding as soon as association did.
special assesments, had 2 in 7 years once for excess snow removal and once for street repair cost.
$3,500, no choice, no negotiation etc.
I hate to disagree with Mr. Gatten, but owned my TH condo (condo=form of ownership not a building style) for 7 years. paid distress price of 45k worth 55k sold for $65k minus commission.
tied score 4 vs 4, going into extra innings.
fwiw
David
Re: Condos for investment? - Posted by Bill Gatten
Posted by Bill Gatten on February 16, 2000 at 19:08:37:
DJ,
This is a good point you’ve raised, and you’ve gotten a lot of truly good information here. However, my take is (as usual) a bit different from most, and I offer it only for interest’s sake. 'Not trying to sell you something (convince? Maybe. Sell? No.)
I love condominiums and town houses (and PUD’s…can’t beat those PUD’s) because there are no management or maintenance headaches, and because they are cheap, easy to get and they cost me nothing. I always hold them in PACTrust; and therefore by giving my tenant a co-beneficiary interest and 100% of the tax write-off (along with a share in the loan’s equity build-up and future appreciation)…they cost me nothing. I usually end up with a few thousand in cash and another few thousand in padded equity up front, a hundred or so in positive cash flow throughout the agreement, and half of the net profit on sale in 5-6 years (along with a refund of my padded equity).
I have made big money on a few condos I’ve owned, and less on others: but, you know, I’ve made in excess of one million percent profit on all of them (costs: nothing; sell for: something + 1,000,000+%).
A second point w/re condos I wish someone could address (kind of a conundrum) is this: Everyone agrees that condos don’t appreciate as well as other kinds of properties (me included). HOWEVER, why is it that a condo (in Southern California, anyway…and Hawaii and other places I’ve been involved with) sells today for about the same percentage of a SFR sale of equal construction, location and amenities, as they did 15 years ago. Fifteen years ago you could buy a nice house in California for $100,000 and an equivalent Condo would have been $50,000…today a nice house will run 250,000, while an equivalent condo will sell for $125,000. If tthe ratio ia the same, doesn’t that mean tht over all the condos are increasing in value in about the same ratios like "lag…catch up…lag…catch up…lag…etc.) What shell is that pea under anyway?
Attorney Robert Bruss has an issue of his newsletter which gives a good rundown on what to look for if you buy a condo. It is $4 if you want to order a copy.
Posted by TomC (Md) on February 16, 2000 at 16:01:59:
Agreed almost completely with what has already been said. I own 2 condos in MD as rentals. I don’t see any appreciation in them, but they are hassle-free rentals with positive cash flow. Add in the fact that you can depreciate much of the purchase price, since you own almost no land. I like to consider the condo fee as a property management fee. Try to buy 2 or 3BR units, they are easier to rent out and not much more expensive than the 1BR ones.
Definitely get a financial statement/balance sheet/ reserve replacement study from the management co. Make sure there are no huge expenses looming with no funds to pay for them. That’s how “special assessments” and escalating fees can kill you.
I am also on the board in both associations where I own units. Well worth the 2 hours a month in effort to make sure things are financially sound.
Don’t try to flip condos in MD. Period. You will have to hold it too long until a buyer shows up( unless you give it away)…eating your profits away.
Posted by Dave T on February 16, 2000 at 12:42:30:
What do you plan to do with a condo? If you want to rehab and resell, then I suggest you look for townhouses and SFRs for that purpose. Condos are harder to sell, do not appreciate as quickly as SFRs and there are usually fewer buyers interested in a condo. Your holding costs tend to be higher with a condo because you still have to pay the association fees.
However, if you want to hold for long term investment, condos can be great rental properties. The condo association usually takes care of exterior maintenance and repair, as well as grounds and landscaping. Interior maintenance is the owner’s responsibility but can be minimal during the year. I own several condos as long term investment rentals. I consider them good cash flow generators but I would not buy them for quick resale.
Re: Condos for investment? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on February 16, 2000 at 12:40:52:
I have been buying and selling townhomes for almost 3 years now and have learned a few things :
Be very meticulous in your homework. Check the association up and down. Make sure that the association is solid financially, and the grounds/buildings are well maintained. Nothing is harder to sell/rent than a unit in a run down community.
Don’t bank on the same appreciation that you can get from a SFR. Normally condo/townhomes do not appreciate at the same rate as SFRs, so I don’t count on it.
It has been my experience that the month-to-month cash flow is better for condo/townhomes in my area than SFRs. The average SFR here sells for 110k, rents for about $1000/month. I normally buy townhomes for about 40k, and they rent for $650 per month. The condo/townhomes simply have better month-to-month cash flow. But as I mentioned above in #2, they do not appreciate, and they are harder to sell.
My experience with condos as rental investment properties has not been great. Escalating homeowners association fees and special assessments by the H/O assoc. many times squeeze the rental cash flows that come in. These are expense items that you have limited control over.
Additonally, the appreciation of most condo’s and townhome type properties is typically not as strong as the more traditonal single family home.
Where I have made money with condo’s is on FLIPPER type deals. Buying them WELL below market from a bank REO dept. or private owner and then selling them fixed up at a retail value and in many cases offering seller financnig to move them to first time type buyers.
Re: Love them and hate them… - Posted by Bill Gatten
Posted by Bill Gatten on February 17, 2000 at 14:01:00:
David,
I’m so used to being disagreed with, that it hardly hurts me anymore ('be right back…going for another box of Kleenex…OK I’m back…snerk, snerk!).
David, if condos don’t appreciate overall in the long run (over time) given sufficient years (after a while) eventually…at somewhat the same rates that SFR’s do, then I presume that in your area houses that sold for $55,000 7 years ago are now going for hundreds of thousands of dollars (??).
However…I do know what you’re saying, and agree with you to a large degree. SFR’s are generally a better buy (I know that)…but it’s just that what I find over time is that I’ve come out about the same (percentage-wise) on resale of condos that I have on anything else. I’ve found that in truly distressing times (like the last ten years in California) when hotels and commercial buildings were dropping 50% or 60% (and more) in value, condo values may have dipped 20-25% while SFR’s were down 30-40%. To me, it seems that in deflationary times, when the medin prices of homes sold are dropping, condos tend to become a more preferred housing option for the broke (“W-2 challenged”) and tend to sell a little quicker on the whole.
Though, do remember that my major reference points are California, Hawaii, Oregon, Washington, Nevada and Arizona…that entire OTHER part of the map is still an enigma to me (except for Broken Arrow, Oklahoma, my new favorite place to buy property with PACTrusts…Wow! What a market!).
I would agree with Bill. Condos in Southern California did not go up as fast as the homes did when the market recovered. Now that homes have gone up so much the condo market seems to be heating up. I would say after a downturn there is a lag in condo prices but eventuall they follow the SFRs. As for the dowside once again I would agree with Bill the Condos fell almost exacty 25% while many homes fell more. My conclusion is that expesive homes…in the upper end of the market fall faster and harder. Less expensive homes ( affordable homes) are more stable. I think the reason has to do with the utlity value of the real estate. That is what is the basic value as shelter. In hard times and good time people need shelter and will buy it or rent it close to market. Anything above this utility value brings good returns in good time but conversely falls dramatically during downturns.
Posted by Susan L.–FL on February 17, 2000 at 09:04:45:
Just read in the paper last night where construction on a Ritz-Carlton was about to begin (on Sarasota Bay) … and that the price for the condos they were selling ranged from $698,000 - $4.3 Million !!! Is that unreal or what!
I had to read it twice after my mouth dropped open.
Thank You for the quick response. I will research the condo assoc fees and weigh my options for longterm, (I would not consider TH or Condo for anything else). Thank you.
Thank You! I had thought about the HOA fees/Dues, but I wasn’t too sure. There is a shortage of multiunit apt bldgs here in so md. So, I have been researching SFH, Condos and TH. I appreciate your response. It confirms my feelings. Thank You. DJ
