Real Estate Guide

Investing In Real Estate - Questions and Answers
'Condos, Apartments & Single-Family Homes '

• How do you choose between condos and single-family homes?
• What's a condo worth?
• Are condos a good investment?
• Are one-bedroom condominiums a good investment?
• Do condos have to be made accessible to the disabled?
• How do I figure out the homeowners association?
• Can condos ban smoking?
• What do you think of a vacation home as an investment?
• How do I project rents on a rental?
• What do you think of get-rich-quick real estate schemes?

How do you choose between condos and single-family homes?

If appreciation is the measure of profitability, historically condominiums generally have lagged behind single-family homes. But, as always, real estate must be looked upon from a localized perspective, and in some major markets, condos have been equally, or more profitable according to the experts. So, before investing, investigate your local market thoroughly.

If your looking to purchase a condominium, here in the Mahoning valley, location, the reliability of the homeowners association's management, and the reputation of the developer should be three factors to weigh heavily in your decision. Ask your RE/MAX Valley REALTOR to give you price appreciation histories of the developments you are considering, and learn all you can about the association and the reputation of the developer.

Buying a used condo in an established area with a strong homeowners association will often be a better investment in terms of appreciation than building a new one in an untested neighborhood. Stay well clear of developers with reputations for frequent construction-defect and broken-promise litigation.

What's a condo worth?

A house or condominium ultimately is worth what someone will pay for it. Everything else is an estimate of value.

An appraisal or a comparative market analysis (CMA) is most often used to determine a property's value.

See also>>

• Investing in Real Estate - Real Estate Value
• Buying Your Home - Condominiums & Townhomes

Are condos a good investment?

Over the past five to ten years, condominiums have become the champions of first time real estate investors. One of the main reasons is the condo Homeowners Association (HOA) who, for fixed monthly fee, takes care of all the exterior maintenance. (In some areas, for an added fee, the HOA will even take care of advertising for and screening tenant applications, collecting the monthly rent, and routine requests from tenants for internal maintenance.) It must also be said, however, that some HOA’s are not investor friendly and won’t allow investors to rent out the condo at all. Be sure to check your Association By-laws before you purchase. Also remember, that even though you are allowed to rent the condo to a third party, the condo association will look to you to make sure that their By-Laws are upheld. You will be responsible for any fines or special assessments that are levied as a result of your tenant’s actions or inactions.

Investing in a condo to rent to third parties will see dividends from at least two sources; rental income (which should be high enough to give you a positive cash flow but low enough not to send your tenants to their nearest mortgage lender to buy their own) and appreciation. If your condo is in a resort area, you may see a third dividend if you only rent to tourists (who will generally pay rents above long term market rental rates) – the condo becomes available for your personal use when it is vacant for a vacation get away.

Concerning appreciation, it’s a fact that condominiums do not enjoy the same rate of appreciation of single family homes, mainly because investors do not own the land on which the condo is built, and because the market for used condos lags considerably behind the market for newly built, custom ones, as well as single family homes. However, over the long run, if you choose your location wisely, you should see gains worthy of the investment, especially now that ‘baby boomers’ are becoming more and more enamored with the condo life style.

If, after a time you choose to make the condo investment your permanent residence, remember, if you itemize your deductions, all the tax benefits associated with single family homes become available to you for the tax year in which you ‘move in.’ These include mortgage interest and property tax deductions, as well the generous long term capital gain protection. These deductions can often make owning a condo far less expensive than renting. Check with your tax attorney or accountant to see how you may benefit from these tax advantages.

If you don’t choose to ever make your condo your primary residence, the tax benefits to owning investment real estate are numerous and superior to most other instruments of investment, including the possibility of a Starker Exchange (1031 Exchange) or a  ‘structured sale’ to defer payment of capital gain upon resale. Here again, the tax law waters are convoluted and treacherous for the layperson. Hire a tax professional to help you navigate them.

See Also >>

Buying Your Home: Condominiums - Is the purchase of a condominium a good investment?

Are one-bedroom condominiums a good investment?

In a word - no. In most areas of the country, including the Mahoning Valley, resale demand for one-bedroom condominiums lags considerably behind two bedroom condos; and builders are constructing more three bedroom 'plus' condos than ever before. The reason: as more and more baby boomers opt for the convenience and ease of the condo life style they still find it difficult to leave behind the space they enjoyed in their single family home. They also want room for family members to be able to come home and enjoy a comfortable stay.

This is not to say that one-bedroom condominiums do not have the benefit  of magnificent appreciation gains in localized  ‘high rent’ urban districts such as New York City, San Francisco, Los Angeles, etc. Here, where you must pay more for space than architecture, smaller condos hold their value equally as well, or better than their larger cousins.

Soothsayer demographers have long been predicting an explosion in the ‘single’ life style. If they are correct, we could increase the demand for one-bedroom condos. We have yet to see any glimmer of truth to this prediction, and, in fact, single females have shown a marked tendency to purchase single family homes, rather than condos. Go figure!

Do condos have to be made accessible to the disabled?

See >> Owning A Home: Associations & Condominiums - Do condos have to be made accessible to the disabled?

How do I figure out the homeowners association?

See >>  Owning Your Home: Condos and Homeowner Associations -  How do I figure out the Homeowners Association?

Can condos ban smoking?

See >> Owning A Home: Associations - Can condos ban smoking?

What do you think of a vacation home as an investment?

See >> Investing In Real Estate: Tax Considerations -  Should I buy a vacation home?

How do I project rents on a rental?

If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on:

• What the property has rented for in the past
• The condition of the building
• Its location
• The current housing market

Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as:

• Property insurance
• Taxes
• Regular maintenance
• Repairs
• Estimated vacancies

What do you think of get-rich-quick real estate schemes?

See >> Investing In Real Estate: Foreclosures - What do you think of get-rich-quick real estate schemes?