Condominiums as Investment Vehicles

Many people feel that investing in real estate is the only way to build a solid retirement income. You can live in one home for part of the year, and rent out the other during the empty time. When you are ready to switch areas, you simply switch which property is being rented. This way you can live in one area for half of a year and then another area for the other half of the year. Another option is to purchase an investment property and earn money by renting it out year round.

As housing skyrocketed, so did condo pricing. Many smart investors felt it was important to buy early, fix them up, and then sell quickly. A smart buyer could make thousands purchasing condos in up and coming areas and then selling quickly when the area became populated. The problem with this is that some people do not think of all the angles first and end up losing money instead of gaining it.

When you are going to purchase a condominium as an investment property, you need to think the process through. There are a number of things that many people do not take into consideration:

-Your mortgage payment and investment property related bills must be less than you charge for rent. Remember that renting a property usually entails you paying for utilities. When you rent, you will pay for the condo‘s association fees. Some areas urge property owners to pay for heat and electricity as well. The amount you set for rent must be able to cover all of these bills plus your mortgage. Mortgages on investment properties usually come with a higher interest rate.

-Rental prices vary from area to area. If you purchase a condo that comes with a mortgage of $700 a month and area rental prices are $700 a month, odds are you will end up losing money instead of earning some.

-Maintenance fees are paid by the landlord. If the pipes in your investment condo burst, you will pay for the repairs out of your own pocket.

-Some condo associations do not allow owners to rent out their condos to other individuals. Before purchasing a condo for investment purchases, you should make sure the association does not have restrictions against renting.

-Watch your mortgage plan as well. Too many people have fallen into the adjustable rate mortgage (ARM) plan. With an ARM plan, your monthly payment can cover the mortgage and interest or just the interest. Your interest rate can rise, and your payment might fall short of the mark. If this happens, the additional interest that didn’t get paid for that month is added to the mortgage balance. In a nutshell, this means you are paying interest on your interest.

Never purchase a condo as an investment property without clearly thinking through all the issues and doing a little research. It’s very easy to think you’ve found a real bargain and then discover the property drains your wallet.