Condos and Co-ops: Not a Good Place to Start

From Buyincomeproperties.com

Investment Property
Condos and Co-ops: Not a Good Place to Start
By
Sep 9, 2005, 17:38

Condos and co-ops probably are not good place to start your career as real estate investor. Of course, the two types of properties are used for investments all the time, and they can produce extremely well. If you buy into a development early, even in the preconstruction phase, the value of your unit can climb quickly. In fact, some investors specialize in reading the market and buying units before they are build. This often called buying units in the dirt. The risk is high, but the rewards cab substantial. However, for an inexperienced investor the risk may be too high. It's easy to buy into the plans for a development and lose money, and it's even easier to buy into the plans for a development and lose money. Even if you are fortunate enough to buy into a sound development, the added burdened, rules and regulations, not to mention the fees associated with condos and co-ops, can hinder your freedom as investor.

Stories run around in investor circles about getting rich quick with condo and co-ops. And in the right market and with the right insights, you can get rich quick. I have seen investors buy units from blueprints and make close to $20,000 profit in less than 90 days. Some investors buy heavily into a single development in hopes of it being the mother lode of real estate. The strategy can pay off. If you own an units and make $20,000 on each of them in six months, that equates to a profit of $200,000 in just half year and with passive income. Not bas! But if you misread the development and the units don't sell or rent well, you can be stuck in financial quicksand with nowhere to run and no money to drag you out.

The underlying risk of condos and co-ops make them both potentially lucrative and equally dangerous. As an investor, i normally advise first time investors to look at small apartment buildings as foundations for their rental portfolios. In certain cases, a condo or co-op can be an excellent first time investment, but the odds are higher that inexperienced investors will regret their purchases. As with single-family home, it can be difficult to buy a condo or co-op that will produce enough rental income to carry its cost of ownership. If the market doesn't appreciate quickly and if the development is not popular, a condo or co-op can drag you down.