Ask Yourself These 5 Questions Before Buying an Investment Condo
Buying your first investment property is both exciting and nerve-racking, and there is a lot to consider before taking the plunge. From determining what type of property to who will handle maintenance and tenant requests, you have to hash out the details ahead of time. You should also ask yourself the following few questions (presented by Metropolitan Property Management) before you pick up the phone and call your real estate agent.
1- Is There a Demand for Condos?
These days, location and size are key. If you’re looking at investing in a condo in a downtown area, you’ll find that listings have skyrocketed and rents are low. That’s because there’s a growing interest in suburban and rural living due to bigger spaces. Something else to consider is that condos are much more affordable than single-family properties. Many people who buy condos turn around and rent them. This is a win/win situation for everyone. If you have the money and the credit to buy, you can provide housing for people who don’t. They pay your mortgage, and you keep the profits.
2- How Much Can I Afford?
When you buy a condo as an investment, you will likely have to put more money down than buying your first and primary residence. In most areas, you’ll have to come up with at least 20 percent for your down payment. You may also have to prove to the lender that the rental is viable. Your mortgage professional can help you crunch the numbers based on your income and expenses, as well as other financial factors.
3- Can I Really Make Money Each Month?
Let’s say that you can afford $775,000 for a condo and have the 20 percent down as cash on hand. Before moving forward, know how much you can rent your property for. Redfin suggests browsing the local rental market and comparing your potential future investment property to similar existing rentals. In the Toronto area, the average two-bedroom condo leases for approximately $2,782 per month. That’s about $1,000 more than in Brampton.
4- Who will Handle the Day-to-Day Tasks?
When you own a rental property, you are a business owner as well. Because of this, you are also responsible for certain obligations to your renters. This includes answering questions, scheduling maintenance, paying maintenance fees, and ensuring the property remains livable. If you have experience in real estate, that’s great; you may be able to handle most of this on your own. However, many novice investors choose to utilize a property management company. A good rule of thumb is that this equates to about 10 percent of your monthly mortgage.
5- What Features Can I Add That Will Command a Higher Rental Fee?
The average condo may rent for just under $2,800 per month, but there are some amenities you can add that can make your investment even more valuable. If your condo is pet friendly, for example, you’ll instantly double your potential renter pool. If you own more than just one property in a particular building, look into providing a co-working space that your tenants can share. Smart home features and access to green space and a rooftop deck are also in high demand. While these additions may cost you more in the beginning, you may be able to recoup the expense within just a few years.
It is not easy to break into the investment property business. However, with the right people in your corner — good real estate and mortgage professionals — you can make a smart decision that will provide an ROI for many years to come. The work you put into research and preparation will make you a better landlord and pave the way for more properties in the future.