Purchasing a condominium for rental investment purposes saves a lot of money and gives higher returns in terms of rental income. A condominium in an ideal location such as near a school, work place, and public transportation never remains vacant. It is always in demand for rent. A condominium with a scenic view and proximity to entertainment centers in a holiday location always has peopled queued up for rent as "seasonal rentals." Condominiums are the best way of investing in rental property. Condo prices have soared 80% in the past five years, while single-family homes have increased 40% in the same period. Investors are literally lining up to buy condominiums for investing in rental property business to augment their wealth. Banks and moneylenders understand the demand for condos and offer easy and quick loans/mortgages for condo investments. 

Safeguards for investing in rental property - condominiums

A reasonably priced property located in a prime area of town is always in demand for rental purposes. Read the property documents carefully before investing in rental property. Keep a few tips in mind before investing in condos as rental property.

When you offer to purchase a condominium unit as an investment in rental property, you will be given the condominium document to be reviewed and approved in limited time. These documents are often lengthy and cumbersome to read. Ask for these documents well in advance of your final closing deal. Take the help of your attorney to check on all the legal details, such as small and ambivalent clauses, to avoid any bothersome problem at a later date. Clarify all the objectionable details at the outset, and finalize the purchase after fully satisfying yourself legally. Keep a special lookout for the rental agreements in these condominium documents, as some associations insist on just once-a-year rental only. If that is the case, it may lead to loss in profits if the tenant vacates midyear. It may defeat your purpose of investment in rental property, so watch out for that clause closely to avoid any problems later.

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 stringently. These rules may have a stipulation that rentals are permitted only one time a year. This may not be a problem, as you may find a tenant for an annual rental, but if the property has a scenic location and it is in demand for ¡°seasonal rental,¡± then you can have a problem. So do look out for this clause before purchasing that particular condominium as a part of your investing in rental property strategy.

After the perusal of the condominium documents, go in for the complete inspection of the property. Mark any shortcomings or damages and get them rectified before the final closure and payment.

The homeowners association of the particular condominium should be running like any good company or corporation, with a balanced budget and adequate allowances for reserves for repairs, such as roof, air conditioning, paving, painting, gym, and pool upkeep. Examine these documents of planned special assessments for the current year for any future upkeep. This will help in guarding against any hidden expense after you have rented out your property.

Examine the condominium homeowner's association documents concerning the reserves set aside for emergency or routine repairs. Most condominium budgets spell out the useful remaining life of the major systems in the property. One look at the documents will determine how many years are left before the building requires repainting, roof replacement, repairs of heating or cooling systems, resealing of driveways, changing of pool filtration plant, or replacement of other essentials. 

After examining the two most important details of the condo docs, the budget and the amount set-aside as reserves for repairs and routine wear and tear. Set aside some amount for title search and loan application fees, which are other big expenses you will incur on purchasing the condominium while investing in rental property. 

A close look at all these details will save you from any unexpected or hidden expenses after the purchase of the property. This also helps in determining the amount you will need to charge for renting out the condominium. A fair rent will provide for a good return to your investment and cover all the costs incurred while procuring the property.

Investing in rental property can be challenging yet rewarding. Review the condominium documents soon after escrow is opened. It keeps you well prepared for the closing deal. Buying an existing condominium in a popular resort area or any good location gives high rent returns and is a very good rental investment in real estate. Investment in rental property like a condominium can help diversify your real estate holdings so that your portfolio remains steady during adverse market conditions.

 

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