What are the differences between single family homes & condo investment?
Using appreciation as a measure, condo investment in some areas have been as profitable a real estate investment as single-family homes in the past five years. And in some markets, condo investment appreciated even more, according to some experts.
While single-family homes have been the preferred real estate investment by homebuyers, changing demographics are helping to make condo investment more popular, especially among single homebuyers, empty nesters and first-time buyers in high-priced markets.
Also, the condo community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation to help raise the value of condo investment.
Should I be looking into condo investment?
While condo investment never had the kind of real estate investment appreciation experienced by single-family homes in the 1980s, most condos have not lost value, some experts say. And, with higher condo prices in many urban markets and more single homebuyers in the market than ever before, the market for condo investment is strong.
As with any home purchase, you should do your homework about the neighborhood or development before you make a decision. In the case of condo investment, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).
The condo community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.
The value of condo investment has remained steady, despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say, making condo investment a valid option.
While there are lots of reports about homeowner's association disputes and construction-defect problems, the industry has worked hard to turn its image around to make condo investment more profitable. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.
Meanwhile, changing demographics are making condos more attractive investments for single homebuyers, empty nesters and first-time buyers in expensive markets.
How do homeowners associations work with your condo investment?
Learn everything you can about the homeowners association before you make a condo investment into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.
When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in dues.
Poorly managed associations can drag down property values for your condo investment and make living there difficult for residents. Start by studying the associations covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the board.
Find out all you can about the association's finances. Beyond reviewing the budget, talk to the treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.
Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo investment for you.
Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.
Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate or condo investments, the more you know the better off you are.
Is it difficult to project rents on rentals for your condo investment?
If you are making a condo investment in a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.
Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs on your condo investment.