Can you remodel a condo?
Can you remodel a condo?
Yes of course you can remodel a condo! It's not an apartment, it's owned by you outright so you are allowed to update it in pretty much whichever way that you want. That being said, most condos have homeowners associations that will limit some changes, like noisy wood floors, that might affect other people in the building. That varies from condo to condo however, and those types of restrictions are generally fairly limited.
If you can buy a condo, you can remodel it. In fact, condos can be a much more accessible entry point into real estate investing than single family homes, particularly in the most expensive urban areas. It's much cheaper (and easier) to buy and fix up a $300k condo than a $600k house. Having just purchased a condo and renovated it (see pic to the right), I can confirm that the numbers pan out, but it's easy to pick the wrong place and end up losing money. No one wants to buy a $300k condo, put $50k into it and end up with a condo worth $325k.
So how would you find a condo? Luckily, the right place can be fairly easy to find if you follow these guidelines.
Focus on finding the right kind of problems
If you're buying a place to flip or renovate, you're already looking for something that's a little rough around the edges. As with all things in life, it's best to only take that thinking to a moderate degree. My philosophy is to maximize the number of bad qualities in a prospective building as long as they are things that you can change. If you buy a beat up condo in a dilapidated building, in a rough part of town, the best you will ever end up with is a nice condo in a dilapidated building in a rough part of town. That's a great way to lose money.
It's not too hard to figure out the types of things you can fix. After our renovation, I made a list of the things that were the cheapest to fix, and generally these are the things that should excite you rather than depress you when you're looking.
Dated lighting - Nothing brings an initial impression down faster than a nasty chandelier from the '70s. Luckily, you can find replacements for $100-$400 a pop and swap them on your own. If you're really smart, sell your newly liberated disco-era lighting to the nearest hipster secondhand home store for added cash.
Bad carpet - Carpet lost the battle to hardwoods a long time ago, but luckily there are still old condos that look horrible almost entirely because of their flooring. Although it isn't a small ticket item, replacing awful carpet with an affordable hard surface/wood floor can completely transform a condo. For mid-to-upper range composite wood floors you can expect to pay $6-9 per square foot, with an extra $1-3 for a sound deadening underlayment (often required). Make sure to confirm wood floors are allowed in the association rules, however.
Bad paint - Old or weird paint is a huge turnoff. Luckily, paint is an easy fix, and a feasible DIY even for the newest flippers. In smaller condos, for $4k you can turn green walls into a much more lucrative type of green.
Simple, but solid cabinets - Realistically, it'll be hard to find a fixer upper that doesn't need a new kitchen, so in many cases you'll be buying cabinets. That sucks because cabinets are ruinously expensive. Even the cheapest Ikea cabinets could cost over $5k in a moderately sized condo kitchen. In our remodel, semi-custom cabinets were quoted at $7k and fully custom cabinets over $25k. Twenty. Five. Thousand. American. Dollars. Instead, try to find a condo with reusable cabinetry that you can reface for a couple thousand.
Reusable tile in the bathroom - If you have tile in the bathroom that you'd be willing to re-use, you can save thousands. Contrary to what you might think, tubs, toilets and vanity's are relatively inexpensive, so if you can reuse tile you can make any bathroom look awesome for $3-5k. In our remodel, the tile (and labor to install it) cost close to that alone.
You'll notice that I didn't follow my own advice to the T in our project condo, and you shouldn't feel the need to find a place that matches every single one of these criteria. If you do, snap it up quick.
Try to avoid problems you can't solve, or can't solve cheaply
After you've found the right neighborhood, most of the problems you can't solve (or solve cheaply) will stem from the condo building itself. Even the most beautifully painted condo building might be harboring rot behind the siding, a leaky roof, or a 30 year old elevator that needs replacement. Any of those things are a special assessment waiting to happen, or at the least a huge strain on the association finances.
Any legally run condo association will disclose potential special assessments and looming large capital investments before purchase, so make sure you receive and read all of the association documents and disclosures before you purchase. Your home inspection won't cover the building itself in detail.
Other problems that are expensive to fix with little upside include:
Water damage - Rot, mold, and leaks are the kinds of problems that are not only expensive to fix, but often indicative of further hidden issues. Run away.
Popcorn ceiling - Any popcorn ceiling from before 1983 likely contains asbestos, and will require a full remediation if you want to remove it. It cost us close to $8000 to remove the popcorn ceiling in our 900 sq. ft. condo, not to mention the cost of replacing the drywall that the removal ruined. Either buy a place built after 1983, or let the popcorn ceiling be, or budget the full cost in before you start.
Vinyl windows - Old, vinyl windows are expensive to replace, and if you see them in the unit you are purchasing, it's probably old enough that they'll need to be swapped relatively soon.
Water heater - Old water heaters are a very important item to replace, so much so that many associations mandate it after a certain time period. The hot water in a new water heater is indistinguishable from the hot water from an old one, so this isn't going to make your project any more valuable.... it'll just cost you more money.
Elevators - If you can find a building without an elevator, it'll likely have much lower HOA's. Elevators are frighteningly expensive to run, maintain and replace.
What does the perfect condo look like?
In a word, boring. It looks like a boring, dated, soul-less box. But, that boring soul-less box will be a perfect blank canvas for you to transform cheaply and profitably. If I were to make a punch list:
Older building in an up-and-coming part of town. Think Mission in San Francisco, Ballard in Seattle, Brooklyn in New York, etc.
2-3 stories, no elevator, garaged parking
Built in the mid-80's (to avoid popcorn ceilings but still be old enough to re-do). Or, built in the 60's-70's but without popcorn ceiling.
Ugly paint, awful carpet, dated lighting
Reusable tile and cabinets
None of the red flags above, or as few of them as possible
Last, and this is the most important, make sure to look at comparable sales over the past 6 months in the close vicinity of your condo. You can follow the steps in my previous post to do that in 30 minutes or so. You want to make sure there is a large range between the lowest price sales and the highest. I call this "condition variance", and it's vital to measure and understand this wherever you are looking.
Measuring and evaluating condition variance
Realistically, a thrifty semi-DIY condo remodel on a 700 sq. ft. unit will cost between $40-$80k. It's vitally important to make sure that there is a healthy condition variance in your chosen neighborhood to ensure that you'll make money. Here's what I mean.
If you purchase a 1000 sq. ft. condo that needs some work for $200k, you paid $200 per sq. ft. If you put $80k into it (very very easy to do...), you will be into the unit for $280k, or $280/sf. But, what if the most expensive, beautiful, pristine, brand new unit in your neighborhood is only selling for $250/sf? Trust me, you won't get a "like new" price for your refurbished unit either.
In summary, make sure to take a look at the condition variance in your neighborhood. To be extra careful, lop off any new (or less than 10 year old) units in your comparison.
In the view below of San Francisco, the Zip Codes 94115 and 94109 have the largest condition variance, and would be safe places to try this strategy. In both neighborhoods, there's $200-300/sf of condition variance, meaning you can buy a unit at $800/sf, put $100/sf into it and potentially be owning something worth $1100/sf. On a 1000/sf unit that's $200,000 in paper profits.
Of course, all of that relies on you keeping costs down, which I'll cover in my next post.