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Make Money with Condominiums and Townhouses

ISBN: 978-0-471-43344-6
312 pages
July 2003
Make Money with Condominiums and Townhouses (0471433446) cover image
In the Make Money series, renowned real estate investor and bestselling author Gary W. Eldred shows you how to profit from the safest, most reliable wealth builder in the world-real estate. With coverage of all the fundamentals-from finding the right properties to financing and managing them-Eldred shows you the ropes so you don't have to learn important lessons the hard way. Unlike general guides to investing in real estate, each title in the Make Money series gives you the specialized expertise necessary to fully profit from a select investment strategy.

Make Money with Condominiums and Townhouses shows homebuyers and investors how to travel the road to real estate wealth-often with little or nothing down. As an affordable investment vehicle, condominiums and townhouses offer numerous advantages over other types of rental property-they require relatively little day-to-day management, they tend to attract more desirable tenants than other rental properties, and they offer low risk and high returns. Full of time-tested techniques and proven money-making strategies, Make Money with Condominiums and Townhouses will show you how to:
* Relax while you put your money to work
* Find properties with high rates of appreciation
* Evaluate homeowner association finances
* Choose profitable locations
* Understand the changing demographics that may affect your investment
* Finance your properties with little or no money down
* Achieve positive cash flow quickly
* Build up equity
* Understand by-laws, disclosure statements, and management contracts
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1. The Lazy Investor’s Way to Wealth.

Condominiums Attract Better Tenants.

Why Condos Attract Better Tenants.

The One Easy Test: Who’s Moving In, Who’s Moving Out.

Your Procedures Count, Too!

Can Investors (Lazy or Not) Really Build Wealth with Condos and Townhouses?

Why Such Neglect?

How You Will Profit with Condos.

Appreciation.

The Historical Record.

What Does the Future Hold?

Summing Up.

2. Bulls, Bears, and Cash Cows.

The Mortgage Paydown.

Wealth without Appreciation.

Add to Your Principal Payments.

Certainty over Uncertainty.

Plan Your Wealth Building: Stocks versus Condos.

Cash Flow.

Condo Investors Earn More Cash Flow.

How to Jump the Hurdle of Negative Cash Flows.

Shelter Your Cash from the IRS.

Depreciation.

Tax-Free Exchanges.

Homeowners Receive Tax-Free Gains.

Gain Tax-Free Cash with a Cash-Out Refinance.

Summing Up.

3. Get to Know the Development.

Condo Communities Appeal to Buyers of All Incomes.

Key Sources of Satisfaction and Dissatisfaction.

Features and Price.

Your Best Opportunity.

Resale Potential.

Good Buy.

No Simple Rules.

Why Stress This Point?

The HOA.

The Organizational Structure.

The Board of Directors.

Management.

Committees.

Attorney and Auditor.

4. Do the HOA Finances Look Good?

Undisclosed Leases.

Sweetheart Contracts.

Understated HOA Fees.

The Budget.

Special Assessments.

Mandatory Payment.

“I Don’t Care! I’m Not Paying”.

HOA Boards Must Follow Specified Procedures and Forms.

Your Financial Due Diligence: Summing Up.

How Much Insurance?

The Lesson of the Oakland-Berkeley Firestorm.

Any Lawsuits?

HOA as Plaintiff.

HOA as Defendant.

Be Wary of HOAs in Litigation.

5. What Do Condo Residents Say?

What Residents Say about Their Condos/ Townhouses.

Overall Satisfaction.

Wise Investors Pay Attention to the Negatives (and Positives) of Condo Buildings and Developments.

What Features Rank Most Important?

Poor Construction, Careless Workmanship, and Unexpected Repairs and Replacements.

Government Inspectors Sometimes Fail to Do Their Jobs.

When Buying an Existing Unit, Check the Resale Package.

Seller Disclosures.

Unethical Builders and Sales Reps.

Sales Rep Disconnect.

The Documents Control.

Children: Little Monsters or Little Darlings.

Potential Problems.

A Parent Speaks.

Pets.

Problems with Renters.

Should You Buy into a Project That’s Heavy with Renters?

Exercise Investor Responsibility.

6. More Likes and Dislikes of Community Living.

Density.

People per Unit.

Project Density versus Unit Crowding.

Multiple Visits/Curb Appeal.

Unit Location.

Perimeter or Interior Building Site.

Why Underprice Preferred Locations?

Downhill or Uphill?

Sight, Sound, and Smell.

Unit Features and Design.

Uniform versus Uniformly Beautiful.

Unit Size.

Livability.

Recreational Amenities.

Will Tenants Pay Higher Rents?

What If Tenants Pay and Play?

What to Do?

Security.

I Love “Lock and Leave”.

Play It Safe: Ask!

Summing Up: Likes and Dislikes.

7. Understand the Bylaws.

Rules Create Value.

No Supply Because There’s No Demand.

Choose the Right HOA for You.

What Will You Find in the Resale Package?

Creating Value within a Context of Fairness.

The Condo Bylaws.

Meetings of Members (Article III).

Board of Directors (Articles IV–VI).

Power and Duties (Article VII).

Association Officers and Duties (Article VIII).

Committees, Records, Assessments, and Seal (Articles IX–XII).

The Amendment Process (Article XIII).

Summing Up.

8. Understand the Declaration.

The Declaration Creates and Governs the HOA.

Don’t Rely on the Legal Opinions of a Real Estate Agent.

Not an Indictment.

The Purpose and Terms of the Declaration.

One Drawback.

Generalities or Details?

The Terms of the Declaration.

Summing Up.

9. Understand the Rules and Regulations.

Board-Issued Rules: Community Values or

Dictatorship.

What Rules and Why?

Maintenance of Unit (1).

Unit Occupancy and Use (2).

Balcony/Terrace (3).

Charcoal Grills (6).

Parking (9).

Pool/Pond Rules (11).

Pets (12).

Flip Charge (15).

Signs (23).

Guests (26).

Leases (33).

Capital Improvements (36).

Owner Additions and Alterations (37).

Utility Services (39) 204

Right of First Refusal (40).

Enforcement of Rules (42).

$50 Fine per Occurrence per Day.

10. Choose a Profitable Location.

In Which Company Should You Invest: General Motors or Microsoft?

Too Optimistic on Microsoft.

Negative Outlook on GM.

GM’s Stock Outperforms Microsoft.

Personal or Financial?

Location Incorporates a Milieu of Features.

Convenience: Easy Come, Easy Go?

Let Me Count the Ways.

Times of the Day or Week.

Bad Weather, Bridge Out, Road Work?

Environment.

Economic Base.

Demographics and Psychographics: Incomes, Lifestyles, and Attitudes.

Aesthetics: Sights, Sounds, Smell.

Zoning and Other Related Ordinances.

Safe and Secure.

Fiscal Soundness.

Political Responsiveness.

Discover Your Area’s Microclimates.

Location: Summing Up.

11. Predict the Future.

How to Define “Bargain”.

Appraisals Shortchange Fundamentals.

Focus on the Recent Past.

Appraisals Ignore Other Areas.

Appraisals Shortchange Economic Fundamentals.

Summing Up: The Market Value Mistake.

Current Market Data.

Time on Market.

Asking Price/Selling Price.

Inventory of Unsold Properties.

Properties under Contract.

Mortgage Purchase Applications, Delinquencies, and Foreclosures.

Vacancy Rates.

Summing Up: The Current Market.

Boom and Bust Cycles.

Boom and Bust Myth.

Media Distortion versus Local Market Experience.

Condos: Boom, Bust, and Recovery.

Don’t Prejudge: Weigh Risks against Potential Rewards.

How to Spot a Condo Bargain.

12. Buy and Finance Your Condominium(s).

Negotiate a Win-Win Purchase Agreement.

Win-Win Principles.

The Purchase Contract.

Maximize Your Leverage with Owner-Occupancy Financing.

Owner-Occupied Buying Strategies.

Homeowners, Too, Can Use This Method.

Why One Year?

Where Can You Find High LTV Owner-Occupied Mortgages?

High Leverage for Investor-Owned Financing.

What Underwriting Standards Do Lenders Apply?

Automated Underwriting.

13. Tailor Your Lease Agreements.

Use Your Lease in Your Market Strategy.

Competitive Advantage.

What Terms Might You Negotiate?

Lease Options.

Here’s How It Works.

Benefits to Investors.

14. Your Easier Path to Wealth and Income.

Less Risk.

Personal Opportunity.

Index.

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GARY W. ELDRED, PhD, has been involved in more than a hundred real estate projects as a buyer, seller, or investment consultant. Dr. Eldred has also taught numerous graduate courses in real estate at America’s top universities, including Stanford, the University of Virginia, and the University of Illinois. He is also the author of Make Money with Small Income Properties and Make Money with Fixer-Uppers and Renovations, and coauthor of the bestseller Investing in Real Estate, Fourth Edition, all published by Wiley.
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"...But if you know nothing about finding, buying and selling property or little about finance...author Gary Eldred is your guy." (Miami Herald, October 8, 2003)

Gary W. Eldred, in his Make Money With Condominiums and Townhouses, differs from those get-rich-quick types who imply that all it takes to be a landlord-tycoon is creative financing and chutzpah.
Real estate can be rewarding, but you have to do your homework. Lots of it. This is where Eldred - a Realtor who has taught at Stanford University and the University of Illinois and co-wrote the thorough Investing in Real Estate with Andrew McLean - comes in.
How do you choose the right condo or town house? The due diligence you have to exercise is considerable. When you are negotiating to buy a unit, the seller has to show you legal and financial documents about the homeowner's association. Read them closely. A homeowner's association that is in financial trouble is more likely to levy special assessments on homeowners to cover deficits or pay for maintenance or repairs.
Other questions: Does the association carry enough insurance? Is it suing or being sued? (Guess who'll pay the legal bills.) Know that sellers and Realtors must disclose any serious defects of a property that they are aware of.
Does a condo development have too many renters? That could harm property values. How do you evaluate unit location, density, size (measurement errors happen frequently), livability, security, parking, amenities and so forth? If your eyes glaze over at all the detail Eldred provides, you may not be cut out to be a real estate investor.
Why invest in condos and town houses? Because in many areas, single-family homes have become too expensive relative to the rental income they can bring.
Eldred gives a good overview of what you need to know before you plunge into the exciting (but perilous) world. Read Make Money With Condominiums in conjunction with his earlier book, Investing in Real Estate, for more insight into how to find bargains and obtain financing from less-known channels. (USA TODAY, October 20, 2003)

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