If you are considering buying a condo for investment, good chance you either looked into this matter beforehand and studied the positive and negative repercussions of this decision.
However, if you are still unsure of whether or not to go through with it, we will give you a complete breakdown of what goes into buying this type of rental property as a first time real estate investment. The idea of buying a condo for investment has many benefits but it is more important to understand the limitations that you might encounter from investing in this type of property for the first time. In general, most first-timers start out their real estate business by investing in a single family home because it might be less of a hassle and more importantly, taking out a loan is much easier and less tedious. Not to burst your bubble, but it is quite difficult to get a loan for a condo if you are a first time or longtime investor. Investors are fully aware of this truth and regardless of the type of investment, they always opt for real estate properties that reap high returns in the long run. Now, we are not telling you not to invest in a condo, but investing in one as a first time investment might not be such a good idea. Again, this is not to discourage you, but investing in real estate is great money if you invest in the right type of property in the right location at the right time. For novice investors, it might be hard to get the jist of things at the beginning but eventually you will figure out the best strategy that works for your business plan. There is no one formula to make money in real estate. You, as an investor, call the shots and have full autonomy to choose the best investment strategy to maximize your real estate portfolio in the long term. Whether you choose to invest in a condo or a single or mutli family home, make sure you run a thorough market and property investment analysis to arrive at the best decision for real estate success.
Related: Why Is Real Estate Market Analysis So Important?
Buying a Condo for Investment is Not a Great First Step
Buying a condo for investment is a tricky subject and you will find many conflicting answers on the topic. Nevertheless, we give you 7 reasons why it might not be such a good decision to invest in a condo from the get go;
- It is hard to get a loan for a condo
Obtaining a mortgage for a condo is much harder than financing a single family home. Not only do burrowers have to qualify, but the condo association has to also qualify. Burrowers face two major issues when getting a mortgage on a condo;
- Strict standards to qualify
- High costs to finance
These issues arise because lenders aka banks must adhere to strict guidelines set by Federal Housing Administration (FHA) for condo mortgages. Some requirements include, but not limited to;
- Majority of the condo units must be owner-occupied
- No owner may own more than 10 percent of the units
With many requirements and restrictions, buying a condo for investment and getting a loan to finance your condo requires lots of time and patience.
- Very high HOA
To own a condo, you are obligated to be a part of Homeowners’ association (HOA) and pay monthly or annual HOA fees for the upkeep and maintenance of the building. Be sure to factor this cost into your monthly payment calculations because you cannot escape these high condo fees. Buying a condo for investment is more costly than you think.
Related: How To Spot A Good Real Estate Investment Deal?
- Rules and restrictions
Do not discount condo association rules; these are common rules that every condo owner must adhere to. Some of these restrictions may apply to owning pets or renting out your condo to tenants are good possibilities. Make sure you know what these restrictions and common rules are before buying the condo.
- Some condos limit or prohibit renters
Again, you may not be allowed to rent out your condo to tenants. If you are buying a condo for investment purposes, make sure there are no such restrictions prior to purchasing or/and getting a mortgage. Some homeowners decide later on to move out and rent out their home for an extra source of income, but if such restriction holds according to condo association rules, you will not be able to use the condo as an investment strategy.
- Slow appreciation
Buying a condo for investment is much more affordable than single-family homes and generally score higher rental income. However, with that said, condos often appreciate in value much slower than single-family homes. This is because you don’t own any land, which is a key factor to increase or appreciate a home’s value. Instead, you only own the inside of the unit and the living space.
- Difficulty reselling
Getting a mortgage is only half the battle; if you decide to resell the condo down the line, you might face difficulty reselling due to financing problems for potential buyers. Remember, when it comes to reselling, you are not in complete control of finalizing this transaction.
- More financial obligation
Owning a condo harbors more financial obligation than single family homes and gives you more uncertainty when it comes to estimating unexpected expenses that you might incur. The best rule is to always overestimate your expenses when buying a condo for investment.
Related:The 6 Hidden Costs of Owning Rental Property
Buying a condo for investment is not an easy decision and if you choose to go with it, make sure you are well aware of all the logistics and repercussions involved in the process. Real estate is all about choosing the right investment to build your portfolio and be profitable in turn. Check out Mashvior to make money fast and find great deals on all types of rental properties across the country.