Is Buying a Condo a Good Real Estate Investment?

Real estate can be a great investment. You can have a full-time tenant or, in areas that attract vacationers, even do week to week or weekend leases. But before you go out and sign a contract, there are several items to include in your calculations to make sure you are making enough for it to be worth the risk.

In additional to purchase price, condos include annual fees you must take into consideration. These include: condo dues, real estate taxes, insurance, maintenance not included in the association dues, and legal costs should you have to do an eviction. To accurately predict profit you need to subtract those figures from your annual expected rental income. Generally, it’s a good idea to underestimate your rental income by a month or two per year to account for vacancies.

If you are financing the property, you must also factor the mortgage interest into these calculations. It’s not just a matter of getting enough rent to cover the payment: you have to make sure the interest isn’t costing you too much in the long run. If you’re only making enough to your monthly payments, it may not be the best investment.

The great part about using a condo as a rental property is that many condo associations cover maintenance costs. Landscaping and even repainting can all be included in association dues, but you must make sure you know for sure what will be covered. If snow removal is not included, you will have to factor that cost into your overall expenses.

Another factor to consider is the location of the property. Is it in an area where renters will be easy to find? Or will you have your work cut out for you in finding reliable tenants? College towns, vacation spots and major cities would all be great for seasonal renters. Other things to ask are what are the employment prospects in the area. Is the area seeing a population growth, decline or remaining stagnant? If you want a year-round tenant, an area with a major employer nearby is a good choice. If you are okay renting to a college crowd, go for college towns. Just make sure you account for the summer when the property may be vacant.

Other costs to consider include legal fees for having the attorney draw up an enforceable lease, cleaning fees for when tenants change, advertising costs and any utilities you are willing to cover to attract tenants. If you allow pets you may have more damage to the property than if you do not. If you regularly rent to college students, you may see more damage than renting to a typical family. So, factor in some cleaning time (whether you do it yourself or pay someone it’s a cost.)

Real estate can offer a high return on your investment. Condos can be especially rewarding because your monthly dues often cover the common areas of expense. Just remember to take all of your costs into consideration when deciding. It’s not only the purchase price you need to get back in rent to truly make a profit.