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5 Pitfalls to Avoid When Buying a Rental Condo

Buyers, especially beginners consider condominiums as good investment properties for the reason that they're more affordable than single family homes or multifamily properties. Moreover, condominiums do not need a lot of maintenance since the condo association or HOA would be the one to handle most external repairs. You only have to worry about interior maintenance. 

These advantages may seem attractive. However, there are also downsides of buying and managing a rental condo - especially when it comes to rental rates and resale value. These can add up to a significant cost. Below, I've listed 5 common pitfalls you can avoid when purchasing a rental condo.

1. HOA Dues

Before you move forward to owning a rental condo, one of the things you need to consider are the HOA dues. These dues are nondeductible tax expenses and these can negatively impact your cash flow. You need to figure out whether these HOA dues to cover exterior maintenance and repairs are justifiable or not. 

To help you decide further, you might want to look into these 3 areas of the homeowner association package:

  • HOA financials
  • 3rd party audits
  • Special assessments

These areas will reveal to you whether or not the HOA is on top of its responsibilities. Signs of a bad HOA include nonpaying or late paying homeowners, lack of reserve funds to cover future costs/repairs, or multiple special assessments. Your HOA dues might frequently increase. 

2. Owner Occupancy Rate

In general, the lower the occupancy rate of the condo, the less desirable it is to future buyers. A low occupancy rate brands the property as less stable. Take a look at occupancy rate - is it going up or down? Imagine yourself trying to sell your condo unit and being at the mercy of the price offer of investors. To ensure a good resale value for your condo unit, go for complexes with an owner occupancy rate of over 70%. Most lenders look for an occupancy rate of at least 50%. 

3. Parking Spaces

One important amenity to look for when buying a rental condo is adequate parking space. Tenants, especially in urban areas, want to utilize parking space without a lot of hassle as possible. Complexes with issues in parking get creative by offering parking passes to owners. However, these can be subject to discontinuation. Availability of parking can make a difference in the desirability of your unit. Anything less than the basic  1:1 ratio of bedrooms to parking spaces can be a disadvantage. 

4. HOA Restrictions

Hoa rules restricting your ability to lease, such as by requiring leases of a minimum length or prohibiting the use of your rental for "vacation rental use" ( type use).

5. Tenants Who Violate HOA Rules

If your tenant breaks any of the HOA rules, you as the owner could get fined for repeated offenses. It becomes a hassle to police your tenants and to collect reimbursement for those fines if the tenant argues they don't need to pay or argues that the fines were unwarranted. Rules can be anything from prohibitions on hanging laundry in patio areas, cleaning up after pets, or noise restrictions after a certain hour. You as the landlord could find yourself caught in "he said she said" scenarios where you are forced to attend hearings and pay fines while these sorts of allegations get sorted out.

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