Buying A Condos As An Investment

Tips and advice on buying a condominium as a rental property and real estate investment.

Investing in real estate is often an effective way to increase your total net worth. Real estate is appreciating faster than the inflation rate in many parts of the country. Combined with the scandals plaguing corporate America, real estate is often viewed as a safe alternative to the stock market.

There are four primary kinds of real estate. Commercial real estate addresses most business needs - offices and retail spaces are typical examples. Manufacturing businesses would require industrial real estate to house their factories. Municipal real estate refers to the properties owned by the government. There is also residential real estate.

Residential real estate is any property not intended for business use, such as single-family homes, vacant land, townhouses and condominiums. Condominiums - often referred to as condos - are often the preferred vehicle for first-time investors to invest in real estate. Condos are easiest to maintain since they are often governed by homeowner's associations (HOAs) that also take care of exterior upkeep. Whether your condo is going to be your primary residence or a rental, you must add the cost of the HOA into your monthly payment. This is a fixed expense. If you elect to rent out your unit, many HOAs also handle the screening process, rent collection and tenant maintenance requests.



Before deciding to invest in a condo you must decide whether the condominium will be your primary residence or strictly a piece of property you will rent to third parties. This will help you to decide where your investment condo should be located. If you are going to live in your condo, then it should be in the best neighborhood you can afford in a location convenient to your job and recreation activities.

If you are going to invest in a condominium to rent to third parties, location is still important. Do you want to have a stable income with long-term tenants? Look for a condo in a safe neighborhood that is convenient to public transportation and large employers. You may want to have a rental property in a resort area you can rent out during peak travel season to tourists. This may also afford you a vacation get-away whenever it is vacant.

Investing in a rental condo pays you dividends in two ways. First, the monthly cash flow provides you with an income. Ideally the rent you charge will be more than your monthly expenses. If you are borrowing to buy the condo, remember to factor in your annual taxes, maintenance fees and any HOA dues in addition to your mortgage payment when setting a price for the rent. The real payoff when investing in a condo is from the appreciation in the unit when you sell it. Typically, the longer you hold onto the condo, the greater your return on investment will be. View your investment in your condo as a long-term holding for maximum appreciation.

Maintaining positive cash flow is critical to your long-term success as a condo investor. To minimize your risk of getting bad tenants, hire a company to screen your tenants carefully. This may seem like an unnecessary expense when on a tight budget, but it may save a lot of heartache if you wind up needing to evict a destructive or nonpaying tenant. If your rental is in a resort area, you may want to hire a local rental service to help market and to collect the rent due by vacationers. Many full-service companies even ensure the renters arrive to a clean home and ensure the property isn't damaged when they check out. If you do not live near your unit and want to make sure your investment is kept in good shape you may wish to consider engaging this kind of management company. Remember to factor in their fees before setting rental rates.

Finally, remember the features of a condo that make it appealing to live in or rent to a long-term tenant will be different than the features vacationers look for. Residential properties are prized for their storage and flowing floor plans. Garages are a nice plus. Vacationers tend to not care about a garage-or an open floor plan, either. Many vacationers can afford their getaways by sharing the cost of lodging with other people. Many properties are more attractive to short term renters if they have space for extra people. These must be furnished - preferably with sleeper sofas, wall beds and screens for additional privacy. Smaller kitchens are ideal to provide more space for sleeping. You must buy the condo that is right for your situation.

If you are living in your condo, remember you can write off all the mortgage interest you pay and can also deduct your local property taxes on your federal tax return. The mortgage interest deduction often makes the cost of owning your condo less expensive than renting an apartment. Check with a tax professional about the different expenses you can deduct on a rental condo.

Investing in a condo is a great way to increase your net worth. Following these tips will help you find the one that is right for you.

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