News From My Realtor: HOA Condo Rules Won’t Allow Investors At This Time

Scott — Mon, 23 Mar 2009 10:00:47 +0000

This last week I was given some unfortunate news about a investment condo I was interested in purchasing for a rental property. My agent contacted the sellers agent and asked if any offers had been made on the condo. He learned no offers had been made, but the sellers agent did ask if I was going to be occupying the condo or make it an investment property. The condo has 100 units and only allows a small percentage to be rental units. The sellers agent is going to find out what the exact percentage of rental units is allowed under the current HOA restrictions. If the percentage is close, I could purchase the condo and sit on it until the numbers are lower, but risk my investment return. Also, if another unit doesn’t convert to an owner occupied condo, I could lose out on my investment completely.

Another option is to petition the HOA and show them that I’m willing to increase the value of the property and have them screen tenants. This process would take time and I might lose the property to someone who is planning on making the condo a primary residence. It’s looking like I need to move on to another property and put this one behind me. It has been a fantastic learning experience and I’ve learned much more about HOA rules and regulations. At this point I’ve invested nothing buy my time, so I feel fortunate compared to some recent stories shared by my Realtor.

I spoke to my Realtor about four potential investment condos when he shared an interesting story about a client of his. The client purchased a condo several years ago and decided to move to a bigger home nearby. He contacted his HOA for another set of keys for a common area for a new tenant that just signed a rental agreement. The HOA admin game him a shocker when they stated that he was not allowed to rent his unit under the HOA rules. The client had to petition the HOA for several months and meet with the current board to plead his request. To make matters worse, the HOA President was also his next-door neighbor and did not want his neighbor to become a renter. The client finally was able to rent out the condo, but lost out on 6 months worth of rent, or $8,000.

After hearing this story, my plan is to contact any HOA and receive a written letter authorizing the purchase of the condo for investment purposes. I can’t imagine buying a rental property and finding out it can’t be rented out. I feel that this has been a wonderful learning experience and another passive income investment property will be found. This week I’m going to be looking at several condos around the same part of town and my Realtor will pre-screen them with the sellers agent to make sure they are available to investors. But, I’m still going to demand a letter from the HOA if an offer is made.

Do you have restrictions on your condo HOA? Have you tried purchasing a condo for an investment property?

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What I Learned About Real Estate Investing Today: Be Patient

Scott — Mon, 16 Mar 2009 10:00:58 +0000

photo credit: allaboutgeorge

This week I’ve been researching real estate in our local area trying to find an opportunity for an investment property. Three condos caught my attention as they were priced aggressively and were all under $100,000. I utilize Zip Realty and have a search setup to scour a 5 mile radius from my home for condos or town homes. Ideally, it would be great to find a single family home but the prices are out of range for an investment property. My goal is to find a property that can generate positive cash flow and also have the potential to increase in value. Every since I purchased my first home, I’ve had a dream of investing in an investment property that could provide passive income for my family. Real estate investments have the opportunity to earn passive income through rent paid by the tenant. Once the property has been purchased, the income derived from the property is mainly passive. My plan is to manage the property myself, so I do anticipate handling any repairs or tenant questions.

I met with a friend who is a local Realtor and we discussed investment properties and what to keep in mind when looking at a property. Much of the meeting was a sobering reminder of the current economic climate facing the real estate market today. He reminded me to be patient and not to get frustrated with banks, as the buying process can last for months. The property we looked at today, he explained, could take up to 5 months to close because it’s a short sale. He was going to contact the sellers agent to find out if it was a bank approved short sale. If not, it could take months. The property was listed at over 50% off it’s purchase price from 2003 and the bank might not want to budge on the price.

The condo has only been on the market for 6 days, and my Realtor expects that it might have several offers already on the table. I was surprised when he said that so calmly, as I thought the real estate market was soft in our area. He explained that the market for high end properties is soft, but very aggressive for single family homes and condos right now. Again, he told me to be patient and prepare to wait it out. The selling agent might have also priced the condo below market value to encourage multiple bids. I thought, wasn’t this the same tactic used during the real estate boom? Why not price a property at what the bank would approve? It seems that if a seller doesn’t get a banks pre-approval, the buying process will only become more complicated.

Just as with any other investment, have a walk away price. My friend told me not to get emotional amid the potential bidding frenzy and to stay focused. Plenty of properties will be coming up over the next few months and this condo isn’t the only potential deal. I’m sure glad my buddy is conservative as well. He explained, even if we bid on the condo, the bank could take several weeks or months to review the offers.

What about a normal condo sale? Actually, it’s difficult to find a condo in our area that is not a foreclosure or short sale. Maybe sellers are waiting to see if the market rebounds before trying to sell. I would like to look at other condos in our area, but have to do more research on HOA and neighborhoods first. I would like to find a condo near our home so that it makes the research much easier, as I know how to market the schools and shopping opportunities. Although, I might also find some better deals further out.

It’s has been an interesting week, and I’m anxious and excited to learn as much as possible about investment properties. Have you started looking at investment property recently? If you purchased a short sale, how long did it take?

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News From My Realtor: HOA Condo Rules Won’t Allow Investors At This Time

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