There’s no denying the fact that real estate investments, when executed properly, can lead to a number of financial rewards. But while most investors think of single and multi-family homes as being the wisest investments, many people underestimate the viability of condos as a real estate investment property. While there are a number of considerations you need to make before investing in a condo, it helps to understand the pros and cons that come with this specific and unique type of real estate investment. Here are just a few considerations to keep in mind before purchasing a condo as an investment property.
Lending Requirements
Depending on your area and real estate history, you may experience tighter restrictions regarding lending requirements. This may be true whether you’re a first time buyer interested in buying an investment property you won’t actually live in, you’re an established buyer and want to purchase a condo as a second home, or you’re anywhere in between. The fact is, lenders often require a 25% down payment or more for a condominium as opposed to a detached home. Plus, you may not be able to make income from your purchase right away. Approximately 35.1 million Americans move every year, many of them looking for rental units. But some lenders require the purchaser to live in the condo for up to a full year before finding a tenant and renting it out. Whatever the case may be, make sure you’re aware of the terms upfront.
Potential For Underfunding
Before buying a condo as an investment property, remember that you’ll have to follow all laws regarding property management. This means that you may be on the hook for some repair or maintenance costs not covered by HOAs. Some experts say that condominiums that are underfunded often fall into disrepair because there’s simply no money to pay for improvements to structurally integral components like concrete, wood, and roofing. Keep in mind that these risks do vary based on location. For example, dry rot is the number one cause of damage to wood structures in and around the Portland area, and it’s incredibly common in other areas as well. The bottom line? Do your homework before making any final decisions in regards to location.
Overall Approval Rates
Finally, it’s important to recognize the differences that come with purchasing a condo vs. a co-op unit. More than 60% of immigrants in the United States today have lived here for at least 15 years, and despite the fact that housing discrimination based on national origin, religion, and race are illegal, some co-op boards do take these factors into consideration in addition to requesting letters of recommendation, credit checks, and other detailed information. Condominiums, on the other hand, offer much more leniency in terms of approval and look mainly at your financial history. This means that ultimately, you’re probably more likely to get approved for a condominium investment than a co-op investment. You can read more about the differences between these properties here.
Condominiums offer countless advantages, but they aren’t for everyone. There are a millionhomes sold a year in the United States, so if a condominium doesn’t seem like the right real estate investment for you, don’t sweat it — your real estate agent can easily help you find an investment property that perfectly meets your needs.
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I would also add that the value of the condo is more directly related to what other condos in the complex are selling for, and not necessarily the comps in the surrounding area. This can be both good and bad.
Im planning on buying investment property, but only after the reset with me Gold and Silver!
Waiting patiently!
Jared
Ditto.
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The most frequent buyer oversight is not reviewing the condo “books.” Is there a reserve for high cost maintenance items like a new roof, parking lot repaving, etc. What does the latest structural report say??? We’ve seen the result in Florida of poor structural maintenance. HAZMAT – asbestos our UST issues. Condition of the pool, underground parking lot…. One is buying into much more than their condo. All the amenities are great, but you also financial responsibility for them. Is the seller jumping a sinking ship…. A sharp rise in condo rates is a bad sign. Low condo rates are desirable but are they enough? Compare to comparable well maintained condo developments. Read the condo association meeting notes – is there a positive vibe or does it look like recent school board meetings…. Attend one if possible.
Excellent tips, Frank! Thank you for sharing them.