Buying a Condo as an Investment
Thinking about becoming a landlord? Depending on where you live, how handy you are or what your future plans are, a condo might be a good investment.
Reasons to Become a Landlord
There are a variety of reasons you might decide to become a landlord:
- You live in a college town where demand for rentals is high.
- Over time, it can be a good source of additional income.
- You want to buy a home in your favorite vacation spot to live in when you retire, and the income you receive renting it out over the years can help pay for it.
In each of these situations, a condo could be a good investment, but in some cases it’s better than others.
The Case for Condo Ownership
Over time, home ownership can get expensive—you have to prepare for a new roof every 20 years or so, plan to paint the exterior every 10 years or so, and depending on the skills and abilities of your tenants, you may have to take care of the lawn and landscaping. However, if you own a condo, these things are taken care of for you.
When it comes to affordability, condos win. They are typically less expensive than single family homes. In addition, you get amenities at many condo complexes that you probably wouldn’t get—or want—with a house, like a pool. Pools require daily maintenance, so you would have to go to the house daily to maintain a pool you own but can’t use, or you’d have to trust your renters to have the ability and willingness to do it for you. Renters do find amenities like these attractive, and condos already have amenities like a pool, hot tub, fitness center, sports courts and more that are appealing to renters and maintained by the complex’s homeowners association (HOA).
As explained, maintenance of the building and grounds in a condo complex is handled by the HOA. Of course, you have to pay monthly homeowners association (HOA) dues for this convenience, but you’re not out the time and inconvenience that goes towards doing this maintenance yourself or finding someone to do it for you.
HOAs serve other purposes as well. They do have restrictions, but they are usually for good reasons. For instance, if every unit owner got to paint the outside of their unit the color of their choice, it could ruin the look of the entire complex and bring property values down. Some even put restrictions on the type or size of pets allowed, hours that you can have visitors, etc. These rules are in place for the safety and comfort of all who live in the complex.
While HOAs are intended to be a good thing, before you buy a condo, find out what the HOA dues go toward and how strong the HOAs financials are. In addition, find out if they allow units to be rented out. Some only allow a certain percentage to be rented out, some don’t allow them to be rented out as vacation rentals and some want to screen potential renters to try to make sure they will respect the HOA’s rules. All of this is to maintain the integrity of the complex and make it a desirable place to live in order to keep the property values up.
If you decide to buy a condo to rent out, make sure your rent is enough to cover the expenses of owning your condo—namely your mortgage payment and the HOA dues. If what you would have to charge for rent exceeds market rental value for similar units, you may want to rethink your decision so it won’t be hard to rent out.
Before you decide if a condo is the right type of investment property for you, talk to a realtor or investment advisor to see if it’s a good fit for your future plans.