Purchasing a condo as an investment property can be a good way to earn passive income via rental payments from tenants. However, condos have special needs that must be considered before you add this type of property to your real estate empire to insure. Here are two things you should know about condos to help you prepare for the unique challenges condos can bring.
Make Sure the Bylaws Match Your Goals
Although you will own the condo, the building where the property resides is overseen by a condo association. In addition to other responsibilities, this organization develops and enforces bylaws designed to ensure the safety and comfort of everyone that lives there.
This can impact your financial goals because the condo association may have bylaws that regulate whether or not you can rent your apartment out to other people. Some condo boards ban the practice. Others limit the number of units that can be rented in order to protect the owner-to-renter ratio, because buildings with high ownership rates and few renters is typically more attractive to banks and buyers. If this is the case, you may have to apply for a permit to rent out your unit, which could take time to obtain.
Even if the association allows rentals, it may limit the type of renters you can have in your condo. For instance, you may be able to rent to traditional tenants but be prohibited from listing your property on sites like Airbnb. Carefully read the bylaws (or discuss the issue with the condo association) of the property you're considering buying to ensure they won't interfere with your plans for the condo.
Condo Fees Can Be Assessed at Any Time
One of the main draws of condos is the association takes care of the building and exterior maintenance. Owners pay a monthly fee that cover repairs and other needed services. While this can save you time and money, it can also have a negative impact on your investment.
This is because the condo association can assess special fees at any time that must be paid on top of the regular monthly costs. Typically this only occurs if there is a major repair or other sudden issue that comes up that must be paid for. For instance, if the building's roof is damaged and repairs aren't covered by insurance, the association may portion the cost of the repairs amongst condo owners. This can affect how much profit you actually make on your investment.
Discuss the amount and frequency of special assessment fees with the condo association, so you can prepare by including that cost into the amount of rent you charge for your place.
For more information about purchasing a condo as an investment, contact a real estate consultant.