Condo Prices See The Biggest Decline Since 2012—Here’s Why They’re Now a Great Cash Flow Opportunity in Today’s Market
Summary
Condo prices have declined significantly, presenting potential cash flow opportunities for investors. Hosts should analyze condos based on rent generation, meticulously assess HOA profiles, and target areas with favorable insurance costs and high rental demand to capitalize on this market shift.
Key Insights
- •Higher HOA and common charge fees and insurance costs are making some condos less affordable.
- •Condos are also getting hit from the financing side, with Fannie Mae and Freddie Mac increasing structural scrutiny of condos, requiring reserve funding for deferred maintenance before approving loans.
- •Condo prices have experienced their steepest drop in value since 2012, despite house prices continuing to rise, with the biggest discounts in pricey coastal metros and investor-heavy second-home markets.
Action Items
- ✓Consider rent demand, focusing on condos near hospitals, universities, and transit hubs, and target professionals such as medical personnel, graduate students, and corporate renters.Effort: lowImpact: medium
- ✓Analyze a prospective condo based on the rent it can generate, calculating rents after HOA costs, rather than price per square foot.Effort: lowImpact: medium
- ✓Analyze HOA profiles meticulously, looking for those that are about 15%-30% of the gross rent, have fully funded reserves, no deferred structural maintenance, clear post-Surfside compliance documentation, and no pending litigation.Effort: mediumImpact: high
Common Mistakes
- ⚠Avoid investing in condos with vague language around "future capital needs," HOA yearly increases of more than 10%, recent insurance nonrenewals, and high investor concentration.
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