How To Make Money Renting Condos

How to Make Money Renting Condos

December 20, 2021

Produced by:
Richard Stevens

Richard Stevens is an active real estate investor with over 8 years of industry experience. He specializes in researching topics that appeal to real estate investors and building calculators that can help property investors understand the expected costs and returns when executing real estate deals.

Renting condos can be a great way to start investing in real estate. They have their downsides, though, so it’s important to figure out what is right for you.

Here’s everything you must know about renting condos and how it works.

Key Points

What is a Condo?

A condo is a housing unit within a community of other housing units. You own the individual unit yourself, but share common areas with the entire community of condo owners. These common areas could include pools, clubhouses, garages, and hallways.

Condos are run by homeowner associations. While they don’t control your unit, they set rules all condo owners must follow including what you can and can’t do with your condo. The HOA also rules on all common areas and is responsible for maintaining them, but the community of condo owners finance the costs with their HOA dues.

What’s the Difference Between a Condo and an Apartment?

At first glance, a condo and apartment may look the same. They have the same structure – a single unit within a community of units. There’s one major difference – you can own a condo but not an apartment. An apartment owner owns the entire complex, not just a single unit.

They will look the same from the outside too. Apartments, like condos, have common areas and typically amenities everyone can share. You can own a condo unit and rent it out or you can own an entire apartment complex and rent out every unit.

It’s a lot more affordable for most people to buy a condo and rent it out.

How to Buy a Condo and Rent it Out

Do Condos Make Good Rental Properties

Buying a condo and renting it out can be a great investment. Here are the steps you should take if becoming a real estate investor sounds like a good idea to you.

Step 1 – Do your Research

Research is the key to finding and buying the right condo. Not all condos make good investments. You want one in an area where people look to rent – some areas are predominately homeowners.

Also, look at associations that allow condo owners to rent out the unit – not all do. Some limit the number of units that can be rented and if the development is at capacity, you won’t be able to rent your unit out.

Work with a reputable real estate agent to get as many details as possible to ensure you’re making a solid investment. Figure in the resale value, the popularity of the area, and the rental demand in the area.

Step 2 – Decide how You’ll Rent out the Property

Before you buy a condo decide what you want out of renting it. Will you run it as an Airbnb, or would you prefer year-round tenants? Each option has its pros and cons. Running an Airbnb could mean less consistent income, but more flexibility. Renting the condo out year-round means you’re the landlord 24/7, 365 days a year but you have a more consistent income.

Step 3 – Determine your Financing Options

Unless you can pay cash for a condo, you’ll need mortgage financing. Most lenders have tougher requirements for financing condos as well as investment properties. Put the two together and you have many more hurdles to cross than you would if you were financing an owner-occupied property.

Fortunately, New Silver offers a low interest rate 30 year rental property loan that is perfect for investment properties.

Step 4 – Buy the Condo

Once you’ve found the right condo and financing, work with your lender to close the loan and the sale. This usually takes 30 to 45 days. After you close on the sale, the condo is yours and if the association says it’s okay, you can rent it out.

Step 5 – Look for Tenants

You can start this step while you’re waiting for the sale to close too. Finding tenants may be fast or it may take time, it depends on the market. Determine the procedures you’ll use to screen tenants and choose the right people for the property.

Step 6 – Decide How you’ll Manage the Property

Your last step is to decide how you’ll manage it. As the landlord, you’re in charge 24/7. Do you have the time and energy to handle 3 AM phone calls or to drop everything you’re doing to take care of a problem?

If not, you may consider hiring a property management company. The management company does everything for the property including collecting the rent. They pay you the rent minus their fee and all you must do is collect the funds once you’ve bought the property.

Do Condos Make Good Rental Properties?

Condos are an attractive option when considering rental properties because they have a lower price point and are easier to get. But they have downsides too:

  • Securing financing is more difficult
  • The HOA has the final say in if you can rent the property out
  • You’ll pay HOA dues which take away from your profits

Are Condos a Good Investment?

Condos can be a good investment in the right situation, but they appreciate slower than single-family homes.

On the plus side, though, you don’t have to worry about outside maintenance, the area provides amenities that may be attractive to renters, and it has a lower barrier to entry.

On the downside, the association can be a thorn in your side, financing is harder to get, and financing is often more expensive for a condo than a single-family home.

Final Thoughts

Is buying a condo and renting it out right for you?

That depends.

You need to look at the big picture. Do you have the down payment required to secure financing on the property? Is there a strong demand for rental condos in the area? Have you researched the average appreciation a condo has in the area?

Once you do your research, you’ll know if buying and renting out a condo in your area is right for you. They can be a great introduction to real estate investing and they often require less work for landlords without exterior maintenance required.

Compare your options and look at the big picture when deciding if you should buy and rent out a condo to make the most of your investment.

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