Buying investment property is a tricky process, especially if you are considering a condo. The whole idea of investing in a condo is controversial. For some real estate investors, it was the optimal rental strategy that generated wealth for them. For others, though, it was a big-time fail and led to disastrous losses. Either way, the problem is not the strategy itself as there is no such thing as a perfect investment strategy. You must know that each investment strategy comes with advantages as well as shortfalls. Therefore, in order for you to succeed in real estate investing, you have to understand the shortfalls and find a way to work them out to your advantage.
Now, here are the most important aspects you will have to understand when buying a condo for rental purposes. These aspects are not all negative. In fact, some of them are major advantages that will help you achieve your real estate investment goals in no time, therefore, making condo rentals the optimal rental strategy there is.
#1. Property Maintenance
As a landlord, property maintenance is one of the daily operations that are associated with the rental property. With condo rentals, however, sometimes maintenance is as low as cutting the grass compared to any other property type. This makes it easier in terms of property management. It is also a better option when you want to save up on property expenses as much as possible, therefore, making it a good way of making money through rental properties.
#2. Condo fees and restrictions
When talking about the downside of buying a condo to rent out, condo fees and restrictions are an important aspect. In terms of condo fees, they add up to the mortgage calculations. Therefore, you might need to put more as a down payment or take a longer-term loan.
As for the restrictions, there are two types:
Condo rules: Buying a condo might be subject to strict rules that you must obey. For example, a rule that prohibits pets might not be to your advantage as you will have to be more selective about your tenants. However, there are people who do not mind it, but, in general, it restricts your choice of tenants.
Renting out: Let us face it, as a real estate investor, your whole purpose of buying a condo is to rent it out. Therefore, having restrictions on that makes no sense for you. In this case, you want to be careful when you proceed with buying one. Make sure you check out to see if there are any restrictions on letting tenants in.
#3. Property appreciation
As a real estate investor, if you are interested in property appreciation, then buying a condo to rent out might not be the optimal rental strategy. The problem with condo rentals is that they appreciate at a low rate. For property appreciation, you might want to consider other property types such as single-family homes.
#4. Property price
A good real estate investment comes with a good price. Therefore, affordability is an important measure of making money out of an investment property. This, in fact, is the best feature of condo rentals: they come at very affordable prices compared to other investment property types. Keep in mind though, it is not the case for ALL condos, but for most of them. So, make sure you do a proper search and view a few properties before buying a condo.
As a landlord, amenities are important in order to attract tenants to your property. When you are looking to buy a property to rent out, it is a good idea to check what amenities are associated with it. Because most condos come with amenities such as a swimming pool, a gym, or even security, these are very significant factors that every landlord should consider if they want to keep his/her rental property occupied by tenants.
Financing a rental property is the first thing you think about when buying investment property. Well, the bad news is that it is the very reason that makes condo rentals not a good real estate investment for a landlord. This particular property type is hard to finance, especially if you are applying for a mortgage. The main problem is that you will have to meet up strict qualification standards to finance a mortgage. One of these qualifications, for example, is that most condos must be owner-occupied in order to get the financing. However, didn’t we already say that your whole purpose as a real estate investor is buying a condo to rent out?! Then what is the point!
Another problem with financing a condo is, actually, the high financing costs. Even though we already said that condos are more affordable than any other property type, there are still the financing costs to take into account.
Another major aspect of an optimal rental strategy is location. In the case of condo rentals, a location could be a factor of major success or a huge fail. Considering this fact, you will have to look for the best places to buy a condo because not all locations are suitable for condo rentals.
Just as any other investment strategy, you want to analyze the housing market at a certain location before buying a condo. This includes performing real estate market analysis, which allows you to compare an investment property to similar properties in that area. It also helps you find the best places to buy a condo.
Also, you want to conduct investment property analysis. This analysis will help you determine the profitability of a condo by calculating the expected return on investment.
Now that you know all the facts associated with condo rentals, you are the one to decide. Buying a condo to rent out might be a good real estate investment only if you know the ins and outs of it. Therefore, if you want to learn more about investing in condo rentals or any other real estate property types for that sake, make sure to check out Mashvisor’s blog.