Investing in a condominium can seem like an easy, low-cost way to get started in real estate investment, and it can be. However, it’s important to review your options and to do the math to ensure that your condo, area, and local real estate market will allow the investment to pay itself off. Condos can be complex purchase decisions, simply because they include consistent third party fees, long-term maintenance and regulation, and might have buyer restrictions, which will limit your ability to earn a return. While the money required to buy a condo might seem less risky than spending three times that to buy a single family home, or 10 times that to buy an apartment complex, you do have to weigh your options to choose the right option for your needs.
In addition, you’ll have to consider your regular expenses, your ability to pay the condo off quickly, and its ability to make money. One big disadvantage of condos is that they aren’t worth much on the mortgage market, so you won’t be able to buy one, get a mortgage, and then invest that money into more property, unless your intention is to buy another condo.
Cost
One of the big disadvantages of buying property in the Seattle area is cost. High real estate demands mean that property prices are skyrocketing, and that means you need a large amount of capital to invest. However, that also means rental costs are skyrocketing as well. But, you do have to pay attention to costs. For example, if you’re planning to invest $250,000 in a condo, and you’re looking at rent between $1,500 and $2,000 with current area prices, that’s not a good bargain by most investment standards, simply because it takes too long to pay off.
If you can get a better deal on the condo, it could turn into a great investment. For example, if you purchase multiple condos and manage to get them for $100,000 each, you have a bargain on your hands and you’ll likely pay off your investment in 5-7 years., with a small return. You usually won’t find costs this low, but you can do the math and find a condo that meets your needs and has the capacity to pay itself off. Because you could also mortgage your condo in the meantime and invest your capital in additional condos, you could also use this to slowly upgrade your real estate investments, so that by the time your first condo pays itself off, you have a lot of them.
What Else to Consider
It’s easy to look at the cost of the property and the average rental rate and decide a property is a great bargain, but it’s also important to consider fees, taxes, maintenance, marketing, tenant relations, and other details. If you want professional property management, and you do if you want to keep your condos full and your tenants happy, you’ll have to take about 10% off the top for that. You’ll also have to take about 10% of your earnings each month and put it aside in case of emergencies. Some other things you’ll have to spend your money on include:
- Insurance
- HOA Dues
- Real Estate Taxes
- Vacancies
- Mortgage Interest Costs
- Condo Assessment Fees
Condos are a great way to get started with real estate investment with a lower amount of capital, and they can pay off. However, it’s important that you do the math to ensure that they will, and that you take the time to handle management, rental, and other issues, so that your condo is as profitable as possible. While your Condo Association will handle regular area maintenance and upkeep, it’s important that you handle the tenant as well. One very important thing to keep in mind is that the lower the cost of the initial investment, the smaller the return over time. Condos return less than single family homes, single family homes offer less return than a multi-family building, and multi-family buildings offer less return than an apartment complex. The more capital you have to invest, and the more individual units you purchase for the same price, the more quickly you will see a profit.
If you’re investing in a condo, consider hiring a professional property manager to market the property. Properties managers can find tenants and will manage your tenant and rent collection to help you to boost tenant satisfaction, while saving you time, so that you can put more into your other investments. To find out more, or to request a free quote, contact SJA Property Management at 425-658-1920.