Real estate investment can be very profitable but be sure to look into these three factors before you decide to purchase a condo instead of a single family home. On the one hand, condos are generally less maintenance than homes. On the other hand, if you don’t do your research before purchasing a condo without looking at the Home Owner’s Association (HOA) rules, regulations, and bi-laws, you could potentially have an investment that will loose you money over time.
An article on InsideRealEstateNews.com written by Harvey S. Jacobs, a real estate lawyer, gives some excellent tips of what needs to be researched prior to closing on an investment condo.
- Have a professional home inspection prior to buying.
- Look over the condominium complexes financial statements. This will give you insight into the complexes reserve account they have on hand in case of repairs and maintenance that needs to be done. Look for a complex that has sufficient reserves so you won’t get a special assessment that will end up costing you more.
Be sure you find out exactly how your monthly HOA dues are being broken out and that there is enough money in reserves so you don’t get a special assessment charge.
- Read all of the legal documents including the bi-laws, declarations, and house rules.
- Declarations go over the specifications of your condo’s dimensions and will also tell you the condominium complexes common areas (hallways, outdoors, lobby, stairwells, etc. – basically everything that is used by all condo owners within the complex).
- The bylaws cover the HOAs rules for annual meetings, officer elections, board of directors, etc.
- The house rules are for both home owners and tenants alike and cover things such as the pet policy, move-in/out policies, noise violations, length of lease terms, etc. You will want to make sure and read these carefully as some are unfavorable when you are trying to make the condo into an investment.
One benefit of owning a condo which undoubtedly has an HOA managing the property is that you only need to take care of the interior of your condo, the HOA covers the rest. If any repairs need to be scheduled, they take care of contracting out the work.
When determining if a condo is going to have a positive cash flow and be a sound investment for you, make sure to factor in the HOA monthly dues with the cost of your mortgage (principle and interest), property taxes, and home owners insurance. Also, HOAs can raise their monthly dues each year so be sure you are aware of this. It is strongly recommended that you get involved with the government of the complex. Become a member of the board of directors. If that is not a possibility, be sure to attend all of the meetings and get to know your neighbors. There is also a great book by Patrick Hohman Condos Townhomes and Home Owner Associations: How to Make Your Investment Safer that will give you more information about investing in a condo/town home and dealing with HOAs.
This is a great resource when looking into buying a condo or townhome as an investment property.
When you decide to purchase an investment property, we can manage your property on your behalf and ensure that you are maintaining at least an 80% occupancy each year. Plus, we handle any and all maintenance items, deal directly with the HOA, collect all rents, negotiate lease contracts with all tenants, issue a 1099 each year with your earnings, and much more!
In the most recent issue of Personal Real Estate Investor Magazine there was an article titled “7 Costly Landlord Mistakes” by Teresa Bitler. We are going to recap these here to better educate you, the property owner. Hopefully none of these mistakes have been made by you with your rental property(ies).
You know what they say – Location, location, location. Well this is definitely true when determining a rental property!
Location matters. If you purchase a single family home, condo, loft, or town home that you plan to rent out, location really does matter. The location of your rental is tied directly to how much rent you can collect; the quality of tenants you are going to have; and the appreciation of you property over time. Some things to look at when buying a rental: nearby school districts, parks and recreation, shopping, entertainment, etc.
Get all of your tenants to sign a lease agreement. Have it reviewed by a lawyer to ensure it follows local laws.
Always get it in writing! Never, ever, ever have anyone live in your rental without getting them to sign a lease. Without getting everything in writing so both parties are aware of the terms, if ever an issue arises, it will be much harder to fight in court. Be sure to talk to a local attorney in your state so they can be sure the lease complies with the local laws.
You never know who could be moving into your rental property. Be sure you run credit and background checks on ALL tenants and be sure it follows the Fair Housing Act.
Run a credit and background check for every tenant. You should have all of your tenants fill out an application which will give you authorization to pull their credit and background checks. References are also a great idea – especially from the previous landlord(s). Be sure you have in writing all of the information you will be requesting from every applicant and use this for everyone. Have the acceptance criteria in writing (i.e. minimum acceptable credit score and income). Be sure to consult the Fair Housing Act to ensure your criteria adhere to the law. You might want to run this by your lawyer as well.
Do a thorough walk through before your tenant moves in with them and before they are going to move out.
Inspections are important. Be sure you have a detailed inspection of the property prior to the tenant’s move in. It’s a good idea to walk the property with the new tenant and notate any existing damages together on a form that both you and the tenant sign. Before they move out, conduct the walk-through again using the same form to see if there are any additional damages. Take photos with a time date stamp on both walk throughs.
Treat your friends and family members renting from you the same as you would any other tenant or else you could end up like him!
This is an investment – treat it like one. Many times you might find yourself renting out your property to a good friend. Be sure you follow the same procedures with them that you would do with any other tenant and don’t let them walk all over you. If they aren’t paying rent, then you need to put your foot down or else it could cost you lots of money in the end.
Be sure you find out your tenants situation before you agree to accept partial payments.
Partial rent payments. Be very careful about accepting partial payments as this shows the tenant that they got away with it once so they can continue to get away with it moving forward. The only time this would be acceptable is if you don’t want to loose a good tenant who is just experiencing a temporary financial hiccup. Just be smart about assessing your tenants needs – if you feel like they simply can’t afford the property anymore, then you should find another renter and give them notice to vacate.
For late rent, be sure to issue a 3 day pay or quit on your tenant door to get them to pay up or begin the eviction process.
Issue prompt pay-or-quit notices. If one of your clients is in default of paying rent, don’t delay in beginning the eviction process by putting a 3 day pay or quit notice on their door. This will give them a deadline of when the rent is due and if they are a good tenant, they will try to re-negotiate their contract or set up a payment plan. Otherwise, you are already on target since the eviction process has already begun.
Property management is a lot of work and could cost you lots of money in the long run especially if you are collecting partial rent payments, not issuing default rent notices, not getting a signed lease, etc.
Hiring a property manager will allow you to avoid these common mistakes all together since the property manager takes care of collecting your tenant’s rents, inspecting the property before and after the tenants leave, issue 3-day pay or quit notices if ever the tenant is in default, etc. They know the local real-estate laws and act as the middle man between you and the tenant so you don’t have to handle the stresses that can come from property management. They also handle any and all maintenance items on your behalf, contact the HOA (if applicable) if there is ever an emergency, handle the tenants requests, etc. The list goes on and on.
AvenueWest has been helping private property owners for over 14 years and currently have locally owned and operated offices in Boston, MA; Colorado Springs, CO; Dallas, TX; Denver, CO; and San Francisco, CA and have more coming soon! Click here to find more about how our Managed Corporate Housing system could work for you and your investment property.