Renting out a condo can be a great way to earn some extra income but is a different process than renting an apartment. We recently had a guest on our Podcast (RentPrep for Landlords) explain why he focuses on buying and renting condos vs. apartments.
Is renting out a condo a good investment?
So clearly there are some limitations to renting out a condo, but if you do your research and know what to expect, it can be a successful investment. There are different tenant screening criteria for different types of rental property.
How much income can you get from renting out a condo?
Supplemental income. If you rent out your condo for $1,500 a month, you’ll receive $18,000 each year in additional income. Increased value over time. Property values generally increase over time, so the longer you hold on to your condo, the more it’ll sell for in the future.
Is it cheaper to own a condo or rent?
No condo fees. There's no getting around it: Condos typically cost more to own than a single- family home of the same size. Not to mention, condo fees (both monthly membership fees and special assessments) are subject to increases, increasing your cost burden over time. Rent limitations.
Can you rent out a condo in the same complex?
Renting out a condo might not even be possible in some locations. You’re going to need to look over the condo docs because one condo complex might allow leasing while another won’t. Someone else renting out a condo in the same complex isn’t even a guarantee that you can do the same.
Can condos be profitable?
With lower purchase prices and more desirable locations, condos can certainly be profitable investment properties and a enjoyable vacation homes.
Do condos have good ROI?
Condos have been proven to be a great option for investors looking for investment opportunities with minimal upkeep needs, especially in comparison to single-family homes which tend to require frequent upgrades and maintenance. Investors should be aware of the options.
What is a good return on investment for a condo?
Most real estate experts agree anything above 8% is a good return on investment, but it's best to aim for over 10% or 12%. Real estate investors can find the best investment properties with high cash on cash return in their city of choice using Mashvisor's Property Finder!
Are condos poor investments?
Yes, condos generally appreciate in value. That's true of any piece of property—as long as it doesn't have wheels or come from a trailer park. But, if you're trying to decide between a condo or a house, keep in mind that a single-family home is usually going to grow in value faster than a condo will.
Are condominiums worth it?
Condos are usually less expensive than single-family homes and have lower maintenance requirements, making them good options for homebuyers on a budget or people looking to downsize. Loans can be harder to get for a condo because some lenders have strict requirements regarding owner occupancy and loan-to-value ratios.
Is buying an old condo a good investment?
Old condominiums can still be an investment-worthy property if it is situated in a strategic location. The centrality of a condo unit is good enough to make up for its age. You can also capitalize on an area's infrastructure improvements and upcoming changes by getting an older and cheaper property in the area.
What is a good profit margin on a rental property?
In terms of profitability, one guideline to use is the 2% rule of thumb. It reasons that if your rent is 2% of the purchase price, you are more likely to generate positive cash flow.
How do I choose an investment for a condo?
0:4712:19How to Choose Your First Condo Investment Property - YouTubeYouTubeStart of suggested clipEnd of suggested clipSo the minimum down payment that you have to put down is 20. But again for simple math purposes. IfMoreSo the minimum down payment that you have to put down is 20. But again for simple math purposes. If you're buying a 500k property then you're gonna need about a hundred thousand dollars in cash.
Why are condominiums a bad investment?
The condo market has been slower to rebound than other kinds of housing, which means that investors may find it harder to keep units rented. Those periods of vacancy mean no incoming rents to offset mortgages and other expenses – and no income from the investment.
Why you should not buy condo?
Less Space and Flexibility. Another one of the reasons not to buy a condo is that you have less space and flexibility in how you use your place. Some condos offer owners extra storage space or possibly a basement, but you'll still likely have a smaller, more compact living environment than you would in a house.
Why condo is a good investment?
Condo investing is GENERALLY a CHEAPER alternative than investing in a house because houses of similar sizes in the same neighborhood cost even more. It also gives individuals investing in condos the ability to purchase an investment property in a BETTER NEIGHBORHOOD.
Why do people rent out their condos?
Some popular reasons for renting out a condo are: You’re not living in it, but you aren’t ready to sell. You purchased the condo as an investment. You need financial help to cover your primary residence’s mortgage. Whatever the reason, it’s important to consider the benefits and downsides of renting out your condo.
How much extra income do you get if you rent out a condo?
Supplemental income. If you rent out your condo for $1,500 a month, you’ll receive $18,000 each year in additional income. Increased value over time. Property values generally increase over time, so the longer you hold on to your condo, the more it’ll sell for in the future. Reduced taxes from expense deductions.
How to find tenants for your property?
Zillow, HotPads and Trulia are popular websites to use when advertising for tenants. You can list your property for rent on all three sites with just one posting through Zillow Rental Manager. 2. Run tenant application screening.
Why are there lease restrictions on condos?
Lease restrictions may place a minimum lease period to avoid vacation rentals and a high turnover rate. Rental caps may limit the total percentage of condos that can be rented at any given time. Many HOAs approve rentals on a first-come, first-served basis, so there’s a chance you’ll end up on a waiting list.
What is condo in real estate?
A condominium (or condo) is a unit within a residential building or community that is individually owned. Condos managed by homeowners associations (HOAs) appeal to many buyers because most of their rules are put into place to maintain property values and serve the best interests of the community.
Do condos have HOA fees?
According to the 2017 American Housing Survey conducted by the U.S. Census Bureau, 80.4% of condos have an HOA.
Can condo insurance be added to property insurance?
Often, your condo insurance can be added as a rider to your primary property insurance. As a landlord, you must consider potential lawsuits in addition to property coverage. Talk with your insurance agency to determine the coverage that’s right for you.
Why do you need to look over condo docs?
Phillip explained that you need to look over the condo docs because one condo can allow leasing where another won’t in the same complex. Just because someone else rents out their condo doesn’t mean it will be a guarantee that you can do the same. Also, be aware of any particular lease restrictions or renting restrictions.
What do you need to know before buying a condo?
First you will need to check if the condominium is in an association and what the rules are. The HOA rules can dictate if you’ll be able to rent or how profitable you can be. Every condo has it’s own set of rules so it’s important to read through the condo docs before buying a condominium.
What is condo in real estate?
A condo is short for “condominium” and is typically a residence owned by a family or individual in a community building. Condos are different from a standard apartment because they have shared common areas which include gyms, garages, spas, pools, yards and even shops depending on location.
What is condo style?
In a condo you own the actual structure of the building with other owners in the association. A townhouse refers to style of a building and has nothing to do with associations or management of the property. When someone lives in a condo it is assumed they have an association and rules that regulate the common areas.
Which is cheaper, a condo or a townhouse?
A condo is typically cheaper because it does not include the land. Which option is better will depend on your needs. A condo will be less maintenance but a higher monthly fee on any HOAs. A townhouse will typically give you more flexibility and ownership but will require more maintenance.
What is Fanny Mae compliant?
Be aware of the reserves the association has. If the community is Fanny Mae compliant it means that the reserves must be in excess of 10% of the operating budget. Reserves are specifically for larger projects such as siding, roofing, paint common areas.
How many residences can be leased at one time?
“There are two basic types of lease restrictions. One type limits the total number of leased residences within a development (e.g. no more than 20 residences can be leased at one time).
Why is renting out a condo important?
Some condos attract older renters. In this case, it’s important to verify their income levels. A rent to income ratio is an important aspect of screening your tenants.
How to invest in a condo?
Owning a condo as an investment is a great way to generate a strong flow of income if you do the math right. When searching for a condo real estate investment, there are a couple of things to consider. Here are the main calculations: 1 Annual Rental Income 2 Annual Expenses: such as real estate taxes, insurance, maintenance and repairs 3 Occasional Expenses: such as legal fees in the case of a tenant eviction, advertising costs to attract tenants, repair costs for damages, etc.
Why do you need to look over condo docs?
You’re going to need to look over the condo docs because one condo complex might allow leasing while another won’t. Someone else renting out a condo in the same complex isn’t even a guarantee that you can do the same. That’s because, at times, there is a cap on the number of rentals allowed.
What is condo in real estate?
Condo is short for condominium. It’s typically a residence owned by an individual in a community building. Condos do have multiple rental/residential units. However, they differ from an apartment complex in that condos have shared common areas for the tenants – such as gyms, garages, spas, pools, yards, and the like.
What are annual expenses for condos?
Annual Expenses: such as real estate taxes, insurance, maintenance and repairs. Occasional Expenses: such as legal fees in the case of a tenant eviction, advertising costs to attract tenants, repair costs for damages, etc. To ensure the most accurate estimations and calculations, consider using a condo investment calculator.
Can you deduct HOA fees as rental?
This happens when there is major damage or upkeep that exceeds the condo reserves. If your condo is a rental, then you can deduct HOA fees as a rental expense.
How to verify income of a tenant?
It is recommended to verify your tenants’ income by looking at 90 days of bank statements. A tip for verifying a retired individuals’ income is to look for “SSA Wire” on their bank statements which indicates their social security income.
What are the expenses of buying a condo?
Expenses can include real estate taxes, insurance, maintenance, and repairs, as well as legal fees if an eviction is required, advertising costs to get tenants, and repair costs if a tenant damages the property. To learn more about the factors to consider when buying a condo, read John Reed's "How to Get Started in Real Estate Investing.".
How much will a condo gain in the first year?
If you expected real estate to rise about 3% per year, in the first year your condo would appreciate from $55,000 to $56,650, for a gain of $1,650. If you cannot pay cash and must finance the property, you’ll also have to factor in the interest cost.
Is buying a condo a good investment?
Buying a condo can be a good investment for some and a bad one for others. So how do you determine if it's a good idea for yourself? By doing some calculations and answering some questions. First, you must accurately estimate the annual rent you may receive, as well as the expenses you'll incur.
What are the expenses associated with condo ownership?
2. Expenses. The following two items are the largest expenses associated with condo ownership: Property Taxes - Property taxes are a function of value only. If you purchase a $1,000,000 condo on the beach, you will pay the same amount of taxes as if you purchased a $1,000,000 home on Holiday Isle.
Why are watercolor condos so popular?
Watercolor Condos are in high demand, not only because of WaterColor amenities, but also because of their close proximity to Seaside’s towne center. 6. Management Fees. This aspect of the business has become very competitive over the past 5 years.
Is it better to have lower condo fees?
Lower fees are better if the condo is well managed and in good condition. Beware of low fees that result from underfunded reserves or neglected maintenance. 3. Condo Amenities. Whether your goal is short term vacation rentals or long term, amenities are important.
How many days can you use your rental property?
If you rent your property seasonally, you may use it yourself for 14 days per year—or 10% of the number of days that you rent to others at a fair market price—and still be able to deduct your expenses.
What is rental property?
Rental Properties: An Overview. The idea of buying a home or apartment to rent out for profit may sound alluring. But buying a rental property for income and long-term capital appreciation can have its ups and downs. For example, the housing market can fluctuate depending on location, supply and demand, and the economy.
What expenses can you deduct on a rental property?
The Internal Revenue Service allows you to deduct many expenses connected with rental property in the categories of: Ordinary and necessary expenses. Improvements. Depreciation. This means that you can deduct your insurance, interest on your mortgage, maintenance costs, and physical wear-and-tear on your property.
Is low fixed rate mortgage debt a good hedge against inflation?
Whether you are buying a primary home or a rental property, it is important to consider what's happening with mortgage interest rates. Low fixed-rate mortgage debt is generally a good hedge against inflation.
Does depreciation reduce the cost basis of a property?
But be aware that depreciation also reduces the cost basis of a property for calculating capital gains when you sell your property. In addition, the 2017 Tax Cuts and Jobs Act offers a number of tax benefits for landlords.
Does cash flow increase over time?
As a result, your cash flow will increase steadily and your costs remain stable. However, neighborhoods can change and your investment could depreciate over time. You should pay attention to the local politics where you invest, just as you would where you live. With some due diligence, you can minimize this exposure .
Can taxes rise faster on a mortgage?
The interest and principal of your mortgage may be fixed, but there is no guarantee that taxes will not rise faster than you can increase rents. Insurance premiums may also spike, as they have in the wake of natural disasters.
How to invest in condos?
That said, some condos are better investments than single-family homes, including the following: 1 Properties selling for less than their assessment value. This could be an opportunity to get an asset that will appreciate more quickly. 2 Packaged deals. For larger investors, opportunities to buy multiple condos can be advantageous. Sellers may be willing to drop asking prices on individual units for a buyer who takes several units. The new owner can then sell off the units separately for a gain. 3 Small condo buildings. There are times where a building with only three or four condos may have all of their units on the market at the same time. An investor who purchases all of these units doesn't have to pay a condo fee to anyone else because they've become the association, in effect. This investor can therefore manage their costs more significantly.
How many condos can you have on the market at the same time?
There are times where a building with only three or four condos may have all of their units on the market at the same time. An investor who purchases all of these units doesn't have to pay a condo fee to anyone else because they've become the association, in effect.
Why do single family homes appreciate more than condos?
Single-family homes tend to appreciate more than condos, partly because people have a hard time envisioning paying a higher sales price for a property where they have to pay condo fees. Many homebuyers would rather put that money into home improvements of their own choosing.
Can you sell a condo for a substantial gain?
Condos are often considered easy, low-maintenance options to park your money, banking on the idea that the condo will appreciate over the years and you will someday be able to sell it for a substantial gain.
Do condos have fees?
No condo fees. There's no getting around it: Condos typically cost more to own than a single- family home of the same size. Not to mention, condo fees (both monthly membership fees and special assessments) are subject to increases, increasing your cost burden over time. Rent limitations.
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Flipping A Condo
Holding A Condo
- Far and away, the biggest problem with holding a condo or co-op is the HOA fee. Now, HOAs do valuable things, so they are by no means useless. They will usually do all exterior maintenance and repairs, as well as pool maintenance if there is a pool. They will almost always pay for trash removal as well. HOAs provide insurance on the exterior of the building (you will need insurance …
The Bylaws
- Another thing you have to be very careful about is the bylaws. Always request a copy while doing your due diligenceand review them carefully. We had one condo we almost had to back out of (or flip) because the bylaws said we couldn’t rent the unit until we had owned it for three years. Luckily, the HOA had relaxed that rule. In one of my less brilliant moments (of which, admittedly, …
Management Quality and Special Assessments
- One of the other things I really don’t like about owning a condo is that I become dependent on the HOA to make sure the complex doesn’t go to the birds. In fact, we backed out of one condo recently because the HOA was out of money, the complex needed serious repairs, and there appeared to be a high level of vacancy. As the owner of only one out of many condos, you just w…