As the housing market in many parts of the United States struggles to rebound, it’s clear that renting is hot. The rental market continues to expand with new types of renters joining the pool of tenants for all kinds of rental properties: single-family homes, multiplexes, and condominiums. That means good news for income property investors. But Jason Hartman advises those looking for successful investments to stick with houses and multiplexes. Condos pose special problems for investors seeking to maximize their return.
As part of the housing resurgence, apartment and condo construction is on the upswing. This kind of hybrid dwelling has made significant inroads into the US housing market in the last few decades. Condos offer buyers upscale, apartment style living without many of the burdens of homeownership. But the very features that draw buyers to condos can create their own headaches, making them much less desirable to income property investors.
Among the numerous problems presented by using condos as income property is the dreaded condo association – a governing committee that functions like the homeowner’s associations in many planned communities around the country. The condo association sets rules for the community and makes decisions about improvements and maintenance, which are funded by the association fees every owner must pay.
Those association fees assessed to every owner – not the tenants who rent the condo – can change at any time to fund projects determined by the association, or to cover the costs of new equipment such as washers and dryers or even gym equipment. Add in utilities and repairs, and the monthly fees can fluctuate wildly. What’s more, if a number of units stand vacant, existing owners must take up the slack to make sure all services continue.
The condo association can seize the units you own if you don’t pay fees you owe them. And if you own multiple units in a complex, many associations require that you pay a fee for each of them. Although the rents you collect may cover most if not all of these fees, it’s important to remember too that the condo association can also make decisions about how many units can be rented out rather than owner-occupied.
Tenants, too, can pose problems. Since most renters typically sign a yearlong lease, they can simply move if there’s a problem. And if your renters violate association rules in major ways, such as painting the unit purple, it’s the owner who’s held responsible, not the tenant.
The condo market has been slower to rebound than other kinds of housing, which means that investors may find it harder to keep units rented. Those periods of vacancy mean no incoming rents to offset mortgages and other expenses – and no income from the investment.
For investors, condo purchases can be risky. As Jason Hartman advises, a comparable investment in one or more single-family homes and/or multiplexes can yield a better and more consistent return – without the headaches. (Top image: Flickr/edkohler)
The Jason Hartman Team
