A condo investment is one of the most effective ways to earn passive income. It is also much cheaper than investing in a single-family house. Condos are generally lower priced, and since they are typically new and/or regularly maintained by a condo association, minimal work has to be done to prepare it for sale or for rent.
Sounds like easy money, right? You simply have to purchase a condo unit, meet all the criteria to rent it out, find a tenant, and collect rent. But this is not all that goes into the process. There are many things to consider before purchasing a condo as an investment property.
This buyer’s guide will help you learn what goes into the process of a condo property investment.
Target Market and Location
First and foremost, you should know who your prospective tenants are. This is often dictated by the location of the condo. In the Bay Area, your primary target markets include families, professionals, retirees, singles, and beach lovers. With this in mind, you can determine the ideal rental prices, the appropriate tenant rules and regulations, and the right marketing strategies.
Budget
Next to consider is your budget. You should make sure your expenses are aligned with your expected profit. Calculate how much rental income you can expect then work backwards to determine your initial and operational budgets.
Keep in mind that in addition to the down payment and monthly mortgage amortizations, you also need to set aside funds for possible improvements and renovations, as well as for monthly HOA fees, marketing expenses, and so on.
You should also prepare for inflation, special assessments that the condo association might impose, increase in condo fees, and other unforeseen events that can potentially affect your budget and profitability.
Profit strategies
There are various ways to maximize your profit from a condo investment. Consider this: if you purchase a unit with your own money, then you can probably only afford one. However, if you borrow money from the bank and put your own money into the mix, then you may generate enough funds to buy two or more condos. This translates into higher earnings, since you will be receiving income from more than one more property.
Make sure, however, that you can rent out your condo. Most condo associations limit the number of units that can be rented out, and if the maximum number has been met, the association may not allow you to lease out your condo.
Moreover, consider holding your condo for at least five years before selling.
Condo values don’t appreciate as fast as single-family homes. It also takes longer to find a buyer for a condo.
Determine the right mortgage
Choose a loan that will allow you better profits. What is the interest rate on the loan? How much time do you have to pay it back? What is the monthly amortization? These are just a few helpful questions to help you figure out which loan is best for you.
As in any investment, a condo rental carries some risks. However, when you play your cards right, it will all be worth it.
It all begins with the right property. With years of experience in the SF Bay Area, I have the expertise to help you find the perfect condo investment and start off on the right foot. Call me today at 415.602.0570 or drop me a note here.