Condominiums are a great place to start investing in property,. But as with all investments, just because they are an easy starting point it doesn’t mean it isn’t without risk. To ensure you are minimizing that risk, there are a few vital questions you must ask before considering buying a unit – or more – in a condo. Let’s take a look at everything you need to know.
What’s the financial situation?
The chances are that if you are a first-time investor, you will be financing your condo with a loan such as a mortgage. Now, it’s important to understand that there are tight restrictions on lending for condos – much tougher than a detached home or property. Your bank or lender will usually request a minimum of a 20 percent deposit – and this could be even more, going up to around the 25 percent mark. It’s also worth bearing in mind that some lenders will expect you actually to live in the condo for a set period.
What’s the rental cap?
Don’t assume that an incredible condo unit will pull in an unlimited amount of money. Many condo boards – or homeowner associations – determine a cap on rental rates that you won’t be able to exceed. Of course, as you can see over at Insignia Condos, amenities could include everything from swimming pools and spas through to landscaped terraces and theater rooms. All these little elements can help you raise your rental prices a little, and soon stack up to a significant return on your investment over the years. But ultimately, if the price is capped, you won’t be able to charge a cent more.
Where are the recent assessments?
Never part cash for a condo unit until you know the state of the building. Some condo blocks might be under litigation for defects, while others may have special assessments requiring renovations and huge upgrades. If you buy your condo before these are carried out, it will hit you in the pocket, unless you negotiate a good deal first. Don’t assume that if there are no assessments to see right now, there won’t be in the future, either. Make sure you only buy your units when you know there has been a site inspection recently.
What fees will I need to pay?
The condo HOA is likely to charge management fees to all residents. It’s up to you whether you pay these yourself or ask your tenants to do it instead. However, bear in mind that you could scare off a lot of potential tenants if they are being charged high rents and HOA fees – it might be best to work out an amount where you share the burden. You should also learn as much about the HOA as you possibly can before making your investment. How active are they? Do they cause tenants problems? What sort of things do they discuss in board meetings, if they have them?
OK, so there you have it – a few vital questions to ask before buying condo units. Ask for this vital info, and you should be able to determine whether there is more – or less – risk involved. Good luck!