A condo purchase can be a great investment, but it may not be for everyone. How do you decide if a condo is a good investment? Answer some questions and do some calculations. You should also ask for help from an expert real estate agent.
You must first estimate how much rent you will receive each year and what expenses you will incur. Real estate taxes, insurance and maintenance are just a few of the expenses. There may also be legal fees for eviction, advertising costs to find tenants, and costs for repairs if a tenant damages your property.
Do the math: A Condo Investment Example
Let’s take an example:
A condo for sale at $55,000 is available. You can also pay cash. The rent will be $750 per month ($9,000 annually). This is a 16.4% return ($9,000 divided by $55,000). There are other expenses that must be considered before you get too excited.
- Real estate taxes
- Repairs and maintenance
- One month of vacancy per annum
- Advertise your condo
- Negative experiences can lead to legal fees and additional repair costs.
- You will also be able to contribute to the property’s appreciation in cash flow.
- You will need to consider the interest cost if you are unable to pay cash or have to finance the property.
Other factors: Condo Assessment and Association fees
It is also important to determine if there are any association fees for the condo you are considering and how often assessments may be required. These expenses are incurred to cover common areas within the condominium.
Assessments may include maintenance and repairs to the parking lot, exterior improvements, landscaping, and any expenses related to common areas like a main lobby and entranceway. Before you calculate your estimated return on condo investment, these expenses must be included in your expense estimate.
You must assess the reality of your assumptions before you make any real estate investments. These are additional questions that you should ask to determine if buying a condo is a wise investment. You should also ask a Myrtle Beach realtor for help.
- Are you a condo owner in an area that is highly sought after, such as near a college or beach?
- Are you noticing a decline in popularity or an increase in popularity?
- Could there be a closure of a major employer and a decline in rental demand?
- Is there a possibility that a condo development could be built near your home, and you would have to make expensive home upgrades in order to keep up with it?
Tips From Pro Real Estate Agent
How can you finance a condo purchase?
To finance a condo you will need to be eligible for a condo loan. Because your lender will inspect the whole condo property, it is generally more difficult to get a condo loan than standard mortgages. You will also need to pay a higher down payment for investment property loans.
What are the deductions available if I purchase a condo as an investment?
Condominiums have the same deductions as other investment properties. These expenses include mortgage interest, repairs and depreciation, insurance, taxes, and any other costs.
What is the best time to keep my condo investment intact before it’s sold?
There are many factors that influence the timing of real estate investments. You might want to sell the property in a few years if you are looking for a quick profit. If your primary goal is to make rental income, however, you may prefer keeping the property longer, as recommended by a Myrtle Beach real estate agent.