If that extra cash is burning a hole in your pocket and you think you’d like to try your hand at condo investing, take a minute to consider a few things.
While it’s tempting to take advantage of the currently low-interest rates and high appreciation rates, as well as the consistent income of condo investing, there are a few questions that need answering before you dive in.
1. What Stipulations Does The Lender Require?
If you plan to finance your condo investment, there are likely going to be strict requirements you’ll need to abide by. For instance, many lenders require 20-25 percent down (this usually applies to most real estate investments – condo or otherwise).
Furthermore, the lender may also require you to live in the building for up to a year before being able to rent it out. If they don’t require you to live in the unit, you may be required to put more money down upfront. If the condo you intend to purchase is under litigation, the lender may not be willing to finance it at all.
2. How Long Do You Intend To Keep Ownership Of The Condo?
Condos tend to appreciate slower than individual real estate properties. Of course, the area and the market have something to do with appreciation as well. On average, however, you should plan to keep a condo for at least five years to see the highest return on your investment. The longer you own a condo, the better off you’ll be.
3. What Do HOA Fees Cover And Who Pays Them?
Many condo owners are shocked when they find out how much homeowner’s association (HOA) fees are. Once you understand what an HOA actually covers, you might be more understanding of the expense.
HOAs are typically in charge of things like sewer, water, garbage, exterior maintenance, lawn care, security, a rec center, pool, and more.
As a condo owner, you may decide to pass the HOA fees on to your tenants. The best way to do this is to increase the monthly rent rather than having the tenants pay directly to the HOA itself.
4. Will You Manage The Condo Yourself Or Hire A Property Manager?
Dealing with tenants is difficult at best. They expect you to be available round the clock and to address their needs immediately. This is especially true in markets where rents are on the rise.
If you choose to manage the building yourself, you’ll need to set firm rules in the lease agreement as to your operating hours and where/who to contact after hours or when you’re out of town. It’s important to have everything in writing and be consistent in your dealings. If there’s a dispute of some sort with a tenant, official forms will be the best way to document the process.
If you don’t want to be the go-to guy for your tenants, you can hire a property management company to do it for you. Do your research and find a reputable one that won’t cut into your profits too much.
Investing in condos is a great way to increase your wealth, but it’s important you consider the questions above before jumping in with both feet.