Are you thinking about getting started with multifamily investing? If so, even though other investors may be encouraging you to invest in apartment buildings, you should also consider investing in condominiums as well.
If you’ve never considered investing in condos before, this article will provide you with several important things that you need to know to get started with making your first condo investment.
Why Invest In Condos?
The main reason to invest in a condominium is that condos are a beginner multifamily real estate investment that often requires less of a down payment than apartment buildings and thanks to the Homeowners Association, a condominium also requires less work to maintain than an apartment building.
When you invest in a condo and pay HOA fees, those fees will take care of the following services:
- Garbage removal
- Building Insurance
- Roof and pool maintenance
- Basic cable
- Exterior maintenance and repairs
Tips For Analyzing An Homeowners Association
Even though you think you may have found a great condo, you have to thoroughly analyze the homeowner’s association first to determine what type of HOA you’re actually dealing with.
Here’s a breakdown of some of the things that you should review when considering if the homeowners association is the right HOA that you want to be associated with or not
#1 – Homeowners association board meeting minutes, bylaws and newsletters
When you review these documents, they will alert you of any possible issues which are occurring with your condo or the building as a whole including restrictions, insurance issues, or any other regulation that the HOA may have, especially if they allow pets in the rental property or not.
#2 – Demand statement
The homeowners association demand statement will tell you if there are any unit violations or HOA fees that may be unpaid.
#3 – Reserve study
When you read the homeowners association reserve study, this is going to tell you how much money the HOA has saved for covering long-term repairs or possible replacements.
Knowing the amount of money that they have saved is important because, as an owner, you want to have confidence that should any major maintenance issues occur like roof leaks, for example, the HOA will be able to cover them.
#4 – Budgets and financial statements
These documents will show you how much money the homeowners association is collecting on a monthly basis, especially if they are collecting enough money to pay their bills and save money for their reserves.
#5- Insurance Master policy binder
The Insurance Master Policy Binder documents will tell you what exactly the HOA Insurance actually covers. To get an accurate idea regarding this issue, it’s advisable that you take the master policy binder to your insurance agent so that they can analyze it to determine what’s not covered so that you can get the proper amount of coverage for your condominium investment property.
#6 – Don’t Forget to Research the HOA Online
One of the most important things to consider when investigating a homeowners association before purchasing a multifamily condominium is to also do online research as well. Thanks to the Internet, it’s easy to investigate organizations like HOAs online.
Just remember that even though the information may readily be available, you should verify that the individual who’s writing the review or publishing information about the HOA actually lives in the building that the HOA manages.
Condos Offer A Low Financial Barrier To Entry To Get Started With Multifamily Investing
Yes, the barrier to entry, or the money that you have to save for your down payment to make your first multifamily real estate investment, is a lot lower when it comes to investing in a condo versus apartments or a single-family home.
The average condo doesn’t require a 20% down payment like what you’d expect to pay when investing in a single-family home or apartment building. Thanks to the low barrier-to-entry, this means that you can get started with owning your first condo investment property in a shorter amount of time then it would take for you to invest in your first multi-family property.
Having a low financial barrier to entry will be especially beneficial for investors in cities like Los Angeles, Miami and San Francisco where the price tag on an apartment building can be much higher than a condo or townhome.
Demand For Condos Nationwide Has Never Been Higher
Besides the obvious financial benefits, another great reason to consider investing in a condo is that there is a high demand for condominiums nationwide, especially among Millennials and younger generations, who prefer to live in condos that are close to the city rather than condos that are located in urban areas.
What’s also great about investing in a condo is that smaller condos are also more acceptable than ever before in this day in age because, with the popularization of tiny homes, more renters have come to accept smaller spaces, especially if they offer a wide range of awesome amenities like a pool, spa or gym.
If you are the type of investor that likes to have an exit strategy in mind when you’re making your investment, you can count on being able to sell your condo investment property within 3 to 5 years for a nice profit should you decide to sell it.
Advantages Of Investing In A Condo
As an investor, you may have read about all the advantages that come with investing in an apartment building, the good news about investing in a condominium is that there are a lot of benefits that come from condo investing as well.
Some of the benefits that come from condo investing include the fact that your tenants will have a shared sense of community when they invest in a condo versus an apartment. This is thanks in large part to the fact that most condos have pools, spas, gyms and other shared communal spaces that tenants can hang out and get to know each other.
It’s also important that we mention the fact that the rules which govern condominiums also benefit landlords and they limit bad tenant behavior. When you combine these rules with the help of a skilled property manager, you can enjoy passive income from owning your condominium is going to produce excellent ROI for your investment portfolio.
Questions To Ask Before You Invest In A Condo
So far we provided you with a variety of reasons why you should consider investing in a condo, if you’re ready to get started with making your first condominium investment, here are a variety of questions which you should ask before you decide to move forward with it
- Is the building under any mediation?
- Are there any lender financing requirements?
- Is the condominium located in a prime area where there is a high demand for condos or other rental properties? This can be a downtown location or an area that’s near a college or popular attractions.
- What is the typical annual rent that you can expect to receive from your condo? This is easy to figure out by doing an online comparative analysis of rents for other condos nearby.
- Is the area where the condo is located becoming more popular or unpopular? You can research the area online including finding out more about issues like local crime statistics, jobs, etc.
Make Sure The Condo Has Great Amenities!
Yes, you may be seriously considering investing in a condominium that’s located in small-town America but, before deciding to spend money on a condo, you should seriously review the amenities that it has to offer.
Besides considering the amenities, you should also seriously consider the area where the condo is located. As we mentioned before in this article, downtown locations are ideal.
What’s also beneficial is if the condo is located in a “walkable” neighborhood which is also close to parks, schools, stores and other shops that people need and uses on a regular basis, this will also help you increase the value of the condominium overtime after you purchase it.
Tips For Financing A Condo
It’s true that financing a condominium is typically simpler and more straightforward than investing in an apartment building but, before moving forward with purchasing a condo you should verify if your lender has financing requirements that are in favor or against condominiums.
Some lenders may favor condominium investments vs townhomes so it’s also important to verify this before moving forward with your investment.
Should You Invest In A Pre-Construction Condo?
In 2020, there’s no doubt that there are more pre-construction condos being built than ever before. This is due to the demand for rental properties Nationwide.
Investing in a pre-construction condo literally depends upon the amount of research that you do in the area where the condo is being built because the obvious benefit that comes from investing in an established condominium is that you know that demographics and statistics for the area where the condo is located versus the pre-construction condo.
Let’s say that you know the area and have confidence that the condominium is going to be a fantastic investment, here are some things to consider before investing in a pre-construction condo
Verify the delivery date – This is important because you want to obviously know when you can rent that condo once the work is finally finished and the property has been brought to the market.
Tip – For best results when purchasing a pre-construction condo it’s best to make sure that delivery of that condo is at least one year out because you are going to get the best price if you purchase it at today’s price rather than waiting 3-6 more months to invest in it.
Research New Construction Tax Breaks – Another huge benefit that’ll come from investing in a pre-construction condo is the new construction tax breaks that you will enjoy as an investor. Before making your investment you should research these tax breaks and make sure that you are takin advantage of every tax break available to you as an investor
Invest In Up and Coming Neighborhoods – Even though it’s important to purchase an existing condo in a well-established location when it comes to purchasing a pre-construction condo, it’s important to purchase a property that’s in an up-and-coming neighborhood.
Buying Downtown? Consider Buying Parking – If you’re planning on purchasing a condominium that’s located downtown, you should absolutely consider buying a parking space as well.
Parking is always going to be difficult to find especially for condos which are located in downtown locations so it makes sense to purchase a condo with a parking spot because that means that you can offer your tenants so much more when they choose to rent from you.
Buy A Storage Or Bicycle Space – During the process of buying a condo, you should also consider buying a storage and or bicycle space. This is important especially if the condo that you want to purchase is downtown because if your tenant rides their bike to work every day, they will need a place to store their bike.
During the process of investing in a condominium, it’s important for you to always follow the same fundamentals that you would follow when investing in any other multifamily property. These include the following
#1 Do your homework – Follow our tips in this article to research the area where the condo is located including the HOA, etc.
#2 Secure financing – Are you going to buy the condo with cash, traditional financing, or crowdfunding?
#3 Make an offer – Your goal should be to make an informed offer based on analyzing the condo following our tips in this article.
#4 Have an exit strategy – You should always know what your exit strategy is going to be, especially if you plan on owning the condo for 3 years, 5 years, 10 years, etc.
#5 Hire a property manager – Don’t waste the time and hassle of managing the condo yourself! Management requires work and you could be investing your time and energy into investing in other projects.
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