If you are looking to make your first investment in a rental property, we think an easy, low-risk option is buying a HUD-owned condo. Here’s why:
Why we love HUD-owned properties
- We get a free professional property inspection report
- The property is vacant, winterized, and can be shown by any HUD-approved real estate agent
- HUD provides an estimate of required repairs to bring it to the minimum acceptable condition to get a mortgage
- The starting list price for the auction is HUD’s estimate of its appraised value
- HUD’s estimate of appraised value is usually low
- The price of the property is reduced at a predictable pattern
- The price HUD will accept is also predicable
- You only have $1,000 earnest money at risk until the day you close
- The sales contract is simple and non-negotiable
- You deal with a major asset management organization on the other end with people who sit behind desks, answer phones and e-mails, are never out on showings or calling you from the car
- You get generous access to the property before closing
Why we love condos for investment
- Less competition from flippers
competition from owner-occupantssince only 30% consider buying a foreclosure
- Most investors
ignore them because they’re turned off or uneducated about HOA fees
- HOA fees mean property
managementresponsibilities which allow for long-distance investing
- You can buy into an asset (i.e. a large HOA reserve fund) which is never reflected in the market value of the price of the condo
- Easier to determine comps because condos usually have similar footprints within the same complex
- Rehabs are typically cosmetic in nature the condo association is responsible for structural
componentslike the roof and siding
Condos can make great BRRRR investments for new investors.
- They require very little in rehab. You can price it out at Home Depot and do some of the work yourself.
- The comps are easy so you know what the bank appraisal will ballpark. Your rental comps are easy too.
- You have generous access to the property beforehand to conduct inspections and get quotes. This also allows you to hit the ground running when you close.
- HOA fees usually cover heat, water, trash removal, and snow removal and landscaping. You’ll attract good tenants because of the professional management.
- The tenants will have to abide by the condo association rules and regulations which can insulate you from some of the interpersonal dynamics of disruptive tenants.