Can buying a condo and renting it out be a good investment for a newbie? I’m looking possibly go down that route. Granted...I gotta educate myself on that subject first. I just want to know the pros and cons about this.
Thanks in advance
If the numbers make sense on a property it can be a good investment. Check out the bigger pockets rental calculator to see if a property makes sense.
Yes, anything can be a good investment if the numbers work. The hard part is knowing what numbers matter and what they should be. There are plenty of threads on here that go into those details already though
@Jason Sanford Just keep in mind that HOA fees take away from your cash flow!
It's a good start because there's low capital expenditure costs associated with owning a condo. The larger aspect of any renovations would be the cosmetic changes inside your unit. Something to keep in mind that's a large negative of condos as investments is that many will limit the amount of units that is allowed to be rented per complex and that would change during your ownership. If that happens then your investment plans are completely blown.
Whether or not there is a rental cap is something you should verify before ever buying a condominium as an investment. You should get this in writing directly from the homeowners association before making a purchase. If you’re able to buy and use the property as a rental, any future change to the condo bylaws should not affect you. As long as it’s a rental at the time the bylaws are changed it should be grandfathered in to remain a rental, even if the building is already over a newly imposed rental cap. If you ever took the unit out of service as a rental you may have trouble putting it back into service is a rental in the future unless the building or complex falls back under the rental cap. Also, keep in mind that an ownership change, such as in or out of a trust or LLC could cause you to lose your status as a grandfathered unit.
With regards to the HOA fees I would strongly consider the amounts and what it covers because those typically never go down and they won’t go away even after you pay off the mortgage. Also it’s important to evaluate the general health of the homeowners association to ensure they have proper reserves for capital expenditures etc and you won’t be hit with special assessments.
Some property management companies will charge a lower fee to manage a condo since there is less maintenance and other issues. And your insurance cost should be less since the HOA fees will cover the master policy on the building. So there can be many benefits to owning a condo, just make sure you do your due diligence before jumping in.
@Jason Sanford “good investment” is a relative term. I know people that 8% per year off their investment and I know people that make 300% per year off their investments. Both believe they are in “good investments”....and here’s the thing, they are both right. The vehicle you the choose to invest in should be a reflection of your personal risk tolerance and capital position.
As a newbie, it would not be prudent to jump into land deals needing subdivisions for new construction. It is a smarter move to begin with a much more manageable investment like a single family or small multi family rental...in my personal opinion.
The important part is that you are planning on putting your money to work for you...
@Jason Sanford It can be. If you are comfortable with the numbers that’s the most important thing. You can make money through cash flow, forced appreciation, natural appreciation over time, mortgage pay down, tax savings, and probably some other ways I’m forgetting. Personally, I wouldn’t buy it unless you can get cash flow (at least enough to stick away for repairs and vacancy).
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