Exit Strategies for Condos - 3 Key Questions To Ask Before You Buy
I have seen many people buying condos as investment property lately, especially in the Florida Real Estate Market. These markets are great for the “lifestyle investors” looking to ride the anticipated growth wave of appreciation over the coming months and years.
Condos as investment properties are great for Northerners looking to escape form the cold, Baby Boomers looking to relocate to the sunbelt, and foreigners looking for second homes or investment opportunities. These types of buyers love these investments as they are anticipated to grow in value as the markets rebound and the positioning is ideal for this right now. Condos and Town Homes are favored by many as they are well taken care of by the association and this creates less concern for the absentee landlord.
With all the great attributes of Condos as investment property, the exit strategy should also be considered.
As with any investment, you want the Condo to give you your anticipated returns and at some point in the future, you want to be able to sell the property to return your initial investment and to provide you with a capital gain in value.
To insure this happens, there are two additional questions for Condos and Town homes (commonly known as common interest communities) that MUST be asked, and which you may not ask in the purchase of a single family home investment.
- Ask to see the bi-laws and most importantly the budget for the association. With the many short sales and foreclosures that have occurred (creating the awesome price points), there have been a lot of unpaid Homeowners Associations fees (HOA fees). While looking at the budget you will want to see that the HOA or (Condo Association) finances have enough capitol in the reserves to meet its financial obligation. In absence of this, you may find yourself getting a sharp increase in monthly HOA fees which cut deeply into your cash flow. Another possibility as that the HOA may have to give the property owners an assessment with can also cut deeply into your cash flow.
- Get a copy of the estoppel letter for your unit purchased (see our Estoppel Letter post) to make sure that the fees on the condo you are buying as an investment property are paid up.
- Ask if your H.O.A or Condo is FHA Approved (see FHA approved post). To maximize top dollar when selling your unit, you will want the largest buying audience possible. If you H.O.A. is not approved, you may have reduced your buying audience dramatically as you will only attract the cash or conventional loan buyer. Of course your goal to execute a perfect exit strategy is to get the largest buying audience possible, which is why an FHA approved property is paramount to achieve this.
Too many people have been buying Condos as investment property by strictly looking at the low cost of purchase numbers. It is VITAL that you realize that those properties can look good today without considering the exit strategy, especially for our foreign investors. Remember to always be purposeful and have the end results in mind when making any real estate investment decisions.