That Condominium May Be The Perfect Rental
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
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.
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
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