The Pro's and Con's of Condominiums as Rentals

The most important thing, if you are going to purchase a condominium as a rental, is to be sure it can be rented out both for long term and as a vacation rental. Don’t take this for granted. In fact, even before you make an offer, ask to see a copy of the CCR’s that govern the complex. I know it sounds crazy, but the HOA (Home Owners Association – the governing body of the condominium project) has the right to limit how an owner uses their property.

Pros:

• The relatively lower price makes the barrier to entry for a rental property affordable

• Lower hands-on maintenance than a single family home

• Condominiums don’t typically have any personal yards – good from the stand point of no yard maintenance

• Condominiums are created and defined by law. This gives the owner a degree of legal protection and recourse that doesn’t exist for owners of single family homes

• Condominiums can have a lot of amenities

• Condominiums tend to be targeted to a specific group. Some target income, demographics and/or lifestyles to name a few

• Tend to get a higher caliber renter

• The opportunity to be part of leadership for the condominium complex

• Depending on the area, the condominium could also lend itself to a vacation rental

Con’s:

• HOA Dues – These are the dues that are paid along with your other costs: taxes, mortgage and insurance (note: HOA dues are tax deductible only if the condo is a rental)

• All maintenance and repairs are paid for by HOA, which can be very costly if there are a lot of amenities

• HOA dues can increase year over year without a vote of membership.

• Condominiums are typically the hardest hit by a market correction; they are the first to lose value and the last to recover

• Condominiums typically rent for less than a single family home. When looking at what rent the market might bear be sure to compare apples to apples

• Special assessment – an amount of money that is required by each unit owner to cover the cost of improvements or a large maintenance item that can’t be covered by the HOA dues and reserves

• Add on’s – many times things like parking spaces aren’t included in the purchase price of the unit and are an additional expense.

The right condominium is a good way for the newbie investor to get into the market. Because many of the costs are fixed it’s easier for an investor to budget. There are also condominium projects that offer rental management services, i.e. screening of prospective tenants, collecting rents and minor repairs

Another thing to take into consideration about purchasing condominiums is getting it funded. In late 2009, new condominium financing rules went into effect for Fannie Mae and Freddie Mac. Make sure you know your financing options up front. It could affect the projects you look at.

So, whether you’re investing as a buy and hold rental, vacation rental, or as a residence, due diligence will be key.

Learn to Trade Now