Maybe you have considered the thought of buying a luxury condominium as your next investment? Since condos are usually less expensive just one family home, they’re able to make accessible investments for anyone with little cash or that are a new comer to real estate. However, they generally obtain a bad rap on his or her investment potential.
As with Marina one residences show suites in actual estate investing though, a lot of preparation and a focus to detail can enable one to make money. Here are a few points to consider about condominiums just as one investment.
Hard Math Trumps Dumb Luck
Exactly why people sometimes wind up losing their shirt over the condominium investment, is practically always simply because they still did not understand the costs involved. Those new to land-lording often focus mainly on the rent they could charge, without giving full credence towards the costs they are going to also incur.
Aside from your mortgage costs, you will probably have property taxes, insurance, and potentially mortgage insurance, in addition to maintenance and repairs. In addition to that, you may even incur advertising costs for locating tenants, legal fees in case a tenant needs to be evicted, or the cost of a house management company if this type of work doesn’t seem like to your liking.
If after subtracting many of these costs from the rent you suspect, according to hard research, that you could charge, you’re still setting up a more desirable return on your investment than you’d investing in an index fund, that generally is sensible to purchase.
One example
As an illustration, suppose you locate a condo for $55,000 that one could pay cash for. Rent prices for a similar condo are about $750 monthly or $9,000 per year, providing you a return (before expenses) of 16.4%. Now let’s talk about expenses. Taxes, insurance, and maintenance and repairs on this type of property will typically any little lower than $2,000.
If your residence is vacant, you won’t just lose the $750 in rent you charge monthly, but probably get in a $250 advertising fee to discover a new tenant. Additionally, once every several years approximately you may have an undesirable knowledge about a tenant or even an act of nature that could amount to any where from $1,000 to $5,000 in attorney’s fees and/or repairs.
After subtracting these fees, your net rent is now more detailed $5,500 annually, providing you of a 9% return on investment, that’s still fairly attractive.
Home Associations
Another big expense that lots of people don’t realize about buying condos is the fact that there is certainly typically a house owner’s association which you’ll need to pay dues. Typically called simply an HOA, this organization is in charge of the maintenance of common areas, including landscaping, parking areas or garages, improvements, and anything else that could get a new valuation on your investment.
While for many, an apartment could be an excessive amount a hazard, to the savvy investor, a condominium can be quite a fantastic way to get a feet wet in actual estate investing.
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