That Condominium May Be The Perfect Rental Property
Condominiums may appear to be the ideal way to purchase rental
property, as their price is often lower than the price for a
single-family home. You may find a condominium unit that is in an
ideal location, located near schools, work, and public transportation.
The unit may be in "move-in" condition with terrific views. There is
one important safeguard you will need to watch for when buying a
condominium for investment and rental purposes.
Condominiums are governed by a set of Condominium Documents or CC &
R's, and a Homeowners Association sees that the rules set down in
these documents are followed. Contained in these homeowner rules may
be a stipulation that rentals are permitted only one time per year.
This may not be a problem, as you may find a tenant for an annual
rental, but be careful that you feel confident that you would not want
to rent the unit out more often than once per year.
When you initially make your offer to purchase a condominium unit, you
will normally be given a limited amount of time in which to review and
approve the condominium documents. Be sure to ask for these well in
advance of your closing date. If you are represented by a REALTORŪ,
your agent will normally get these documents for you. If an attorney
represents you, be sure to show the documents to your legal counsel as
soon as possible.
The condominium documents are often lengthy and cumbersome to read.
You would want to find any objectionable details as soon as possible,
before you have incurred expenses such as a title search, loan
application fees, or home inspection. Besides looking for the rental
provision in these "condo docs", there are other safeguards that are
important to look for.
The two most important details to look at are the budget and the
amount set aside for reserves by the homeowner's association. Ask if
any special assessments are planned for the near future. A well-run
homeowners association should be run like any good company or
corporation, with a balanced budget and adequate allowances for
reserves for repairs, such as roof, air-conditioning, paving,
painting, or pool upkeep.
You wouldn't want to purchase a condominium for rental purposes, set a
rental amount, only to find you will be assessed a large amount for a
new roof. Most condominium budgets spell out the useful remaining life
of the major systems in the building or property. You can look at this
and determine how many years are left before the building needs to be
painted, the roof replaced, the air-conditioning or generator repaired
or replaced, the driveway resealed, or the pool heater replaced.
You may think that these concerns can be dealt with later, when they
come up, but taking a close look now could prepare you for unexpected
expenses and you can then determine the amount you will need to charge
for renting out your investment unit to cover all your costs.
Condominium units can be great investment rental properties, as they
are often located in resort areas. Properties located in popular
resort areas may be better rented out as a "seasonal rental," when the
rents charged are typically higher than other times of the year. If
this were the case, you would then want to look carefully at the
rental restriction rules outlined in the condominium documents.
Be sure to let your Realtor, attorney, or escrow officer know that you
would like to review the condominium documents as soon as possible
after escrow is opened. Being well prepared when purchasing a
condominium for rental investment purposes will save you money and
help the closing go smoothly and quickly.