June 6, 2022

Condominium Investment for Starters


Purchasing your first piece of real estate investment, whether to live in or rent out, is one of the most exciting yet intimidating decisions you can make. Where do you start? You’ve heard time and time again that renting a rental property is a waste of money, but what if it’s true? Should you buy or invest in rental properties?

Being a first-time condominium buyer or investor can be an intimidating and strenuous experience. There are a lot of decisions to be made, things to purchase, and what nots! The following is good insights that should help you get started on the right foot.

Do you want to own a condo?

There are many considerations that go into owning a condo. As a potential homeowner, it’s important to be realistic about your lifestyle and financial goals. The goal of this article is to provide a comprehensive overview of everything you need to know before making this decision for buying a condo unit as an investment property.

How much should your down payment be?

While it can be tempting to put down as little as possible when buying a condominium, that’s not generally a good idea. Instead, you should aim for at least 20 percent of the purchase price. Why is this? Because putting less than 20 percent down will trigger private mortgage insurance. This extra monthly fee is added to your mortgage payment until you’ve paid at least 20 percent of the purchase price of your home (and equity has been built).

If you don’t have enough money for a 20 percent down payment, there are some low-down-payment options available; however, some lenders and loan programs may require buyers to pay PMI indefinitely. It all depends on how much you put down and how your lender structures the loan.

Ultimately, try not to stretch yourself too thin financially when making a condominium purchase—the more comfortable you are with your real estate investments, the better off you’ll be in the long run.

What are the fees associated with a condo purchase?

Aside from the actual purchase price of the condo, there are many costs associated with buying a condominium. Many of these additional expenses can be rolled into the overall mortgage loan, but you should expect to pay out-of-pocket for some of them.

For example, when applying for a mortgage loan, you’ll usually be expected to pay an application fee. A home inspection is another cost that’s typically paid upfront by the buyer (not by the real estate agent) and will likely depend on where you live and how large the condo is.

If you’re buying a newly built condo or one in a building managed by an association, there may also be fees involved in getting accepted as an owner of that property. For example, some associations charge a flat fee, whereas others have initiation rates that depend on market value or square footage.

What about condo fees?

In most cases, condo fees are the monthly charges that run on a property’s condominium association. These fees are generally composed of building-specific costs (such as water) in addition to maintenance and repair expenses. The number of condo fees is usually determined by how long you’ve owned your home—more commonly called a property or unit. In our case, this means we started paying for the common areas before we moved in.

The first thing to note about condo fees is that they’re often not included in your total cost when you’re deciding on where to live or buying a place. That’s because these types of expenses are separate from the cost of ownership—that is, the total amount you pay over time for everything associated with having it as your permanent residence, including mortgage payments, property taxes, and insurance premiums. Instead, condo fees generally cover only things like maintaining the grounds and furnishing the common areas during your ownership period (the length of time you’re expected to stay there).

What is the depreciation of the unit you’re buying?

The depreciation of the condo investment unit you’re buying is also important. That is, will the value of your condo go up over time? Will it go down? This may feel like a silly question to ask, but it’s not just about what’s happening in your local housing market; there are other factors at play as well, such as how long it will take for you to recover your initial investment. For example, if you spend 15 years paying off the mortgage on a condo that has seen rapid appreciation (for whatever reason), this may not be a good investment for you. You’d have been better off spending less money and buying an apartment or house. The same can be said for condominiums in rapidly gentrifying areas: if the neighborhood changes for the better and property values rise because of it, your investment will rise along with them!

What will your ROI be after paying fees and taxes on your investment?

The next step in your real estate investing journey is to calculate your ROI, or return on investment. This is a fairly standard calculation that you’ll use for any property you might invest in. In order to find your ROI, you’ll want to use this formula:

ROI = (total profit from investment – amount of investment) / amount of investment * 100

The first thing we will need to do is estimate the total profit from the sale of the condo and add that with the monthly rent payments over time. We’ll say that after 10 years, this condo will be worth $500,000. You’ve been charging $1,200 per month rent and have had no missed or late payments so far. Taking this into account with our projected condo value: (500K + 120K) = 620 K

So now we can plug in all the numbers into our formula like this: (620K – 400K) / 400K * 100 = 55%! Your rate of return is 55%. Not bad!

Remember these factors when starting with condo investing

It can be overwhelming to think about all of the factors that go into buying a condo, but it’s a great investment if you have time for research and planning.

There are a lot of things to think about when it comes to making your first condominium investment. The decision to purchase a property is an important one, and you’ll want to make sure that you’ve done all the necessary research before putting down the money. Once you’ve decided on your budget for buying a condo, you’ll need to find out what that’s going to get you—and what exactly “that” entails.

You may have dreams of getting everything on your wish list, but it’s important to know what your deal breakers are. Some condo purchases require hefty fees and taxes that can take up a large portion of the cost. And keep in mind: there will always be unexpected costs! Being prepared for these expenses (as well as any issues with the actual property) will help keep your stress levels down and allow you to focus more on enjoying your new home or investment property rather than worrying about how much longer you’ll have enough money until payday comes around again.

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