Everyone wants a small source of income on the side and investing in a condo is a good option. Whether you are seeking to add a condo to your portfolio or just want to buy a second house to rent out, you need to consider a few things before investing in a condo.
There are tighter restrictions imposed on financing condos than on detached homes. Lenders will usually ask for 20-25% down payment on investment properties. Other lenders will require that you live in the condo for not less than one year before you rent it out; otherwise you may have to pay a higher down payment. Ask your lender about any regulations concerning the financing of condos.
Condos do not appreciate quickly compared to detached homes. However, the market and area are large determinants of this. Experts advise investors to think of condos as long-term investments in order to realize the highest return on their capital. Hold on to it for at least 5 years. Most condo associations have rental caps. This refers to the limit put in place by the HOA or condo board on the number of units that should be rented out. Make sure you know whether or not the unit you are buying can be rented out. The units of a building under litigation, for any defect, can barely be sold because getting bank financing for such condos is almost impossible.
Even if you have all the money at hand, litigation is still something you should be cautious about. One major problem is a sign of many underlying issues. Special assessments are the fees that the HOA charges to cater for condo building repairs when the cost exceeds what is in the HOA account. These fees can cost a lot and they are mandatory.
A HOA will, in most cases, have scheduled site inspections so as to determine the state of the grounds and building. They also have information about any recommended upcoming repairs. Ask your agent for reserve studies so that you will know of any upcoming repairs and what they may cost. HOA fees can be high so it helps to know what is covered.
They cover sewer, water, garbage, grounds, a community center, security, exterior building maintenance, pool, etc. A HOA payment is more of a savings account for your house’s maintenance. You can incorporate this payment into the rent amount. It will be easier to access the HOA through your agent before buying the condo. Ask for as many documents as possible from the HOA and read them.
This will let you know how active and accessible it is. Buying a condo is one thing, renting it out is another. Check if all the units in the building are occupied and if not, find out why. Ask to know the rental rates in the building. Tenants are not easy to deal with. As a landlord, you have to address their issues carefully and in time. If you cannot do this, you might want to hire a property manager.