Condos: Hybrid Housing, Risky Investment

The upswing in rental markets around the country has property investors examining all available options for creating income from rentals. Though single-family homes and multiplex housing units such as duplexes and triplexes have grabbed the headlines as good options for income investing, some investors are also turning attention to the forgotten market of condominiums. But according to Jason Hartman, condos, compared to other kinds of rental income properties, offer little in terms of a return and a lot in terms of attendant problems.

According to a recent report, the long-term outlook for the condo market appears promising, as young professionals wanting more than an apartment and less than the burden of a house flock to urban areas, and well-off baby boomers opt to downsize. But in the short term, the demand for condos lags behind that of the rest of the market. And since most people interested in condo living choose to purchase their units, the tenant pool for condo rentals may be relatively small.

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 unties 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.

While condos are readily available at relatively low prices, investors seeking a long term return on their investment may fare better with single family homes and multiplex housing structures that offer the kind of consistent income from tenant rents – as well as more freedom and fewer headaches. (Top image: Flickr/ramelectronicsdotnet)

The American Monetary Association Team

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