To become a real estate investor, you do not have to buy an entire house. Many investors, in reality, use single condominium units as highly lucrative investment vehicles. Condominium units are also a perfect investment for investors seeking to rent out their units and produce passive income, thanks to their relatively low purchase rates and strategic locations.
Table of Contents - Consider these tips before you purchase a condo as an investment
- What to Know Before Investing in a Condo?
- Check Out Variables that are Worth Considering
- Check Out the Condo Fees
- Evaluate the Unit Boundaries
- Traditional vs. Freehold
- Condo Association's Rules & Restrictions
- Building Maintenance Policy and Reserve Charges
- Local Laws
- Policies for Pets and Guests
- Check Your Eligibility for Renting
- Consider Various Investment Options
- Carefully consider your lending options
- How to Choose Your First Condo Investment Property
Although there is a significant amount of red tape that makes condo investment difficult, however when done correctly, you can utilize a condominium unit for producing a substantial amount of passive income.
What to Know Before Investing in a Condo?
Investors considering buying a condominium unit should be aware of the following:
- It becomes rather difficult and challenging for the investors to break in as the condominium industry is highly regulated.
- You will probably have to deal with a local government agency, a condominium management firm, and the building's ownership, depending on the building you have chosen to buy a unit in. Even before considering investing, you must clearly understand all of the entities you will be dealing with while buying and renting out a condominium unit.
- Aside from the red tape associated with condo investing, investors will find it even more challenging to obtain financing for condo purchases. As a result, you will be forced to pay cash for your condominium.
- It is worth noting that Condos appreciate at a slower pace as compared to conventional real estate investments. Anyone who owns a condo is also responsible for paying association dues, which can eat a significant portion of your earnings and lessen your ability to gain profit from your investment.
- Conducting thorough research ahead of time would save you the aggravation of unnecessary fees and other issues that can occur during the purchase and rental of a condo. Finally, a little extra research and analysis will assist you in ensuring that your investment is profitable.
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Check Out Variables that are Worth Considering
There are several considerations to take into account while buying a condo as an investment vehicle. If you have not carefully carried out your research, you might end up with an undesired condominium unit that does not fit your needs. It would be even worse if it turns into a money trap!
Although the particular factors you consider before buying a condominium can vary depending on the unit, below are the few initial factors you should consider when you approach a for-sale unit:
Check Out the Condo Fees
First and foremost, you must have a clear understanding of the condominium fees charged by the building's management and ownership, as well as what will be covered in these fees. These evaluations are whether charged weekly, quarterly, or annually. Ground maintenance and lobby staffing are usually among the common services. Sometimes, Land taxes and shared utility costs are also included in the condominium fees.
Evaluate the Unit Boundaries
For many condo owners, this turns out a confusing point that becomes difficult and challenging to manage. So before you purchase a unit, make sure you know where the unit's boundaries start and end. Some units, for example, only have the interior walls; others may have the exterior walls, as well as a balcony, patio, or rooftop.
Traditional vs. Freehold
Although the precise concept of a freehold condominium varies by province, in general, it requires not only the unit but also the property on which it is built. Traditional condos only include the unit's interior and a small portion of the exterior space, making freehold units much more valuable. In addition, the owner of a freehold unit has more independence.
Condo Association's Rules & Restrictions
A condo association manages almost every condominium building. These management firms have rigid guidelines and bylaws that can make you feel as though you are renting the property rather than the other way around. Before committing to a purchase, make sure to go through the entire association's rules and guidelines, and never hesitate to ask questions.
Building Maintenance Policy and Reserve Charges
Evert condo building should have separate savings account set aside for carrying out emergency repairs. When a significant repair is required, you should be able to access notes about these reserve fees and how they are allocated. You must also be aware of how special assessments are levied by the condo management when the reserve payments are insufficient to repair.
Local regulations: Cities are increasingly enforcing rules on how investors will benefit from condominiums. Be sure to research how condos are viewed in your target market. In particular administrations, for example, you might not be allowed to list your condo as a short-term rental.
Policies for Pets and Guests
Many condo associations limit the number of visitors a resident can have and the duration they can stay. They can also prohibit pets from entering the house. These factors can have an influence on the rental market value of the unit. Before deciding to buy a unit, be sure to inquire about guest and pet policies and how they are implemented.
Check Your Eligibility for Renting
While most condominium management companies allow investors to buy condo units and rent them out, some associations exclude condo owners from subleasing. So before you agree to purchase the unit, make sure you can rent it out at all.
Consider Various Investment Options
Condos can appear to be a cheaper way to get into a dense, urban market, but there are some disadvantages to using them as your primary investment vehicle. So, before you consider buying a condo, consider other available investment options too.
Condominium investment is a perfect way for investors with limited funds to get started on their journey to financial independence and start making passive income. If you are a first-time buyer looking for a simple way to break into the real estate market, however, you may want to reconsider buying a condo carefully. Condominiums can be a difficult first-time investment due to hidden costs and various other disadvantages.
Carefully consider your lending options
Not all lenders will finance the condo your looking to purchase. Many lenders have a sq.ft. requirement and each lender has their own requirement for the reserve fund of the condo. Don't risk your purchase by applying at the wrong lender. We recommend you contact LendCity Mortgages for your condo purchase. They can be reached at the link above or by calling 1-519-960-0370.
How to Choose Your First Condo Investment Property
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