The 6 Best Questions to Ask Before Buying a Rental Condo

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Buying a rental condo can be an attractive investment opportunity. They have low prices as compared to multifamily and single-family homes. You have to deal with some maintenance issues as an owner.

Moreover, Condos can be an excellent investment in a perfect situation. You should understand the nature of the property before signing a contract. If you want to find out the benefits of buying a rental condo, here are some questions to ask. These will help you to understand how to make money by buying a rental condo.

Why can buying a rental condo be a good investment?

buying a rental condo; woven basket overflowing with money
  • Low Cost: In several markets, condos are cheaper as compared to other homes. You may find a rentable condo for almost $60,000. A single-family home is available for $120,000. Money is a major barrier to real estate investment. If you want an affordable start, get started with condos.
  • Best Locations: Condos may be located in an area with limited multifamily and single-family homes. For instance, several vacation destinations and downtown areas have several condos.
  • Low Maintenance: Condos are available with extra fees. They may have involved some maintenance expenses as compared to other properties.
  • Some Individual Expenses: Fees of condos cover a few expenses you will ordinarily pay for. You have to pay for cable, insurance, water, building insurance, and pest control.

What are the necessities of lenders?

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If you want to finance a condo, there may be some tight restrictions. For investment properties, the lender requires a 20% to 25% down payment. Sometimes, it becomes necessary for the purchaser to live in the unit before renting out a condo. They have to reside in the same condo for almost one year.

Lenders may not finance condos in a building undergoing litigation. You have to contact a lender to understand particular regulations and rules.

Do you want to keep a condo for a longer period?

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Condos may not quickly appreciate like detached homes. It depends on the market and other areas. You can consider it a long-term investment to get the highest return. Feel free to hold your condo for almost five years.

Have you checked the rental cap of your building?  

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Before investment, consider renting out condo vs house. Several condo buildings have rental caps. HOA or condo boards set this limit. They restrict a number to rent out condos. An investor must collect information about a condo before renting it out.

Do you check the litigation of a building?

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If the building of a condo is under litigation, you should not invest in this building. A building may be under litigation for some defects. In this situation, you will not get bank financing for condos. If you are buying with cash, carefully evaluate the litigation status of a building.

Are any special assessments involved?

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Special assessments require you to pay fees to the homeowner association. This fee is vital to cover building repairs of a condo, such as seismic upgrades, siding repairs, and a new roof. It may increase the amount of HOA expenses. These are important and costly. For an individual assessment, the seller has to pay the full amount.

Understand HOA Fees

Some sellers are surprised at high HOA fees. Remember, these fees may cover different expenses. Several HOAs cover garbage, sewer, exterior maintenance of building, security, grounds, etc. These are important for maintenance.

A few owners may try to pass this fee to their renters. If you want to do this, make sure to include this fee in monthly rent. Remember, HOA should be accessible and active. In numerous cases, it can be challenging to access a person from HOA.

You can access HOA through an agent. Feel free to request several documents. An agent can obtain them, such as special assessment, minutes of the HOA board, and annual budget. After reading these documents, you will get an idea about the nature of HOA.

Final Verdict

Make sure to understand the maintenance requirements. You must have sufficient money in a reserve account to manage HOA. Evaluate rental rates of your area along with vacancy rates. It will be useful to find out the best rental rates for other units.

A quick craigslist search may help you to see the details of apartments and condos for rent. Feel free to hire a company to manage condos.

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