Buying a condominium or a townhome can be a great way to start investing in real estate. The cost is relatively low compared to purchasing a single family home, and many of the neighborhoods where condos and townhomes are located have a variety of amenities, from pools and spas to fitness centers and tennis courts.
Amenities will often enhance a property’s appeal to potential renters. Of course they can also increase a property’s resale value, but what gave me pause as I spoke with a client recently was the idea that amenities can also reduce a property’s value if they are in bad condition.
This leads to a larger idea – that many issues are specific to purchasing a condominium or townhome. To help others achieve their goals, whether buying a condo as an investment or a primary residence, I wanted to share five things to consider before making a purchase:
- Monthly association fees. Find out what the monthly fee covers. In most cases the fee pays for things like common area maintenance, insurance, amenities and management. These can vary greatly, especially according to the type of amenities that are present.
- Amenities. Are there any amenities where the property is located? Are they in a state of disrepair? If so, the association should have adequate reserve funds in the coffer; a costly special assessment could be coming if the funds are insufficient to cover the necessary repairs.
- Reserve funds. A certain percentage of the monthly fee needs to be allocated for major repairs. The percentage can differ substantially based on the age of the community, but a good rule of thumb is that communities that are less than 10 years old should have 10 percent of their fees set aside. Communities between 10 and 20 years old need 25 to 30 percent, and it only increases from there.
- Association management. Is the community professionally managed or is it managed by a group of volunteers? It’s always a good idea to review the minutes from the meetings of an association’s board, and it’s always preferable to buy in a community with professional management. This will help ensure that adequate reserve funds are in place, amenities are well-maintained, and issues are handled in a professional, timely manner.
- Rules and restrictions. What rules are imposed on the homeowners? If the rules are so strict that they severely limit your ability to use the property, it could be a poor investment. Knowing whether or not you will be able to rent out your unit is essential, even if you are buying the property as a primary residence.
Of particular importance for investors is the question of hiring a property manager. Keeping up with monthly fees is the owner’s responsibility; so is the task of navigating the laws associated with owning rental properties. Working with a property manager can help increase return on investment and alleviate some of the headaches that landlords experience.