Condos can be excellent for purchasing as an investment. When purchasing a condo as an investment, however, it’s important that you understand the things you should look for prior to pulling the trigger. In addition to being Scottsdale Realtors, Geoff and Andrea Lilienfeld also own multiple Scottsdale Condos in Old Town Scottsdale.
HOA Rules & Regulations
Condominiums are governed by a home owner’s association that is responsible for enforcing the rules and regulations of the community. Some common pitfalls that you could run into include rules around rentals. It’s very common in Scottsdale for the minimum rental period to be 30 days per the rules & regulations. This is in line with zoning ordinances so is pretty standard. Some communities, however, may have rules that require a 90 day (Optima Camelview), 6 months, or 1-year minimum leases. Some communities strictly forbid rentals at all. It’s extremely important that you understand all rules & regulations prior to purchasing a condo as an investment property.
Make sure to get a copy of the last two years of HOA financials. Once you get the financials take a look at the bottom line, most like likely called Profit (or loss). You want to be sure that the HOA is running at a profit, and not at a loss. A strong HOA should also have a reserve or capital improvement account. It’s important that the reserve is getting larger. If there were some recent capital improvements made the reserve may have been tapped into, which is fine. What you want to be careful of is that the reserve isn’t shrinking because the HOA is using it to fund normal operating expenses. A good rule of thumb is that the HOA should have $1,000 in reserves for every unit in the complex.
Understand the HOA Dues
Don’t look for the communities that have really low HOA dues. You want the HOA dues to be high enough that they cover the community’s expenses and have money left over to contribute to the reserve account.
In a lot of Scottsdale Condo communities, electricity, gas, or other utilities may be included. As we all know in Arizona, electricity can get pretty expensive in the summer so make sure to subtract at least $100 per month when considering the HOA dues.
If the condo community has a gym that’s nice enough that you don’t need a gym membership, that’s also a measurable savings.
Walk the Grounds
This may sound obvious but a lot of investors forget to take the time to perform due diligence of the grounds. Walk around a little bit, talk to some people, and get a feeling for the overall condition of the condo community. Hopefully, you’ve already seen the financials and have an idea of what the condo community has in their capital reserve account. Compare the amount of deferred maintenance to that capital reserve account. If there’s a lot more deferred maintenance than there is in the HOA’s capital reserve account you may want to reconsider. This is what leads to a special assessment.
Some of the items you should keep your eyes out for while walking the grounds include:
- Pool – What does the water look like? Will it need to be resurfaced anytime soon?
- Roof – How old does the roof look?
- Parking – In Scottsdale most communities have covered parking and many have very dated structures. Take a look at the structure to see if it's going to need to be replaced soon
- Asphalt – Take a look at the condition of the actual asphalt, repaving can be very costly
- Building Condition – Just having to paint a condo community can be expensive, if there’s extensive stucco or structural repair needed the bills can add up quickly
Find Out Rental Rates
In Scottsdale, condo rentals are often advertised on MLS. This is beneficial to you because it means that your real estate agent can pull comps on MLS to see what other condos in the community have rented for much the same way he/she can pull comps for what condos sold for. Ask your Scottsdale real estate agent to pull this data for you so that you can do the math.
We Can Help
The above are some things you should definitely pay attention to when purchasing a condo as an investment property. There are, of course, other things that you should be on the look out for when considering an investment property. The best way mitigate the pit falls is to have a real estate agent that is very familiar with investment property purchasing and can give you good advice on communities to choose.
Geoff and Andrea Lilienfeld own three Scottsdale condos as investment properties. We love to help other investors find the perfect fits. If you're interested in learning more you can fill out our contact form or please give us a call at (480)-387-3990.
You may be interested in taking a look at Scottsdale Shadows condos.