Welcome to San Diego Blog | November 28, 2018
Things to Consider before Purchasing a Condominium as a Rental Property
Carefully Check the CC&R’s and any other bylaws
Before you make an offer on a condo be sure to carefully review the Homeowners Associations (HOA) Covenants, Conditions, and Restrictions (CC&R’s). These are the bylaws that all residents of the community need to abide by and more often than not there is a restriction on renting out of condos. These restrictions are almost always in the form of minimum lease length, which can range from as short as 30 days all the way up to 12 months. This will greatly affect the kind of rental property you can purchase. For example, if you are trying to run an Airbnb model, look for the shortest restriction time possible as this will widen your field of potential renters.
Another important thing to remember is that your HOA will want a copy of all agreements between you the owner and your management company or tenants. This keeps all parties on the same page when it comes to building maintenance, use of facilities, community rule changes and anything else that the HOA needs to alert everyone to. Also keep in mind that you will be held responsible by the HOA for any fines that your tenants incur, so make sure they are aware of all of the rules and their lease clearly states that the tenant is responsible if this happens.
Quality of Management and Upcoming Special Assessments
Another thing to keep in mind is the management of the HOA and any upcoming assessments as those can turn a profitable year into a loss quickly! If the HOA seems to be mismanaged or is low on funds then the quality of the complex can go down which in turn will affect the value of your rental property and the rent you can collect. For example, if you know that there is an upcoming assessment you can factor that into the amount of rent you need to make per month for a positive cash flow.
Age of Property
Something else to carefully consider is the age of the property. An older property may require more upkeep than a newer one, and this can affect your investment long term as the property ages even more. If preventative maintenance has not been taken care of inside the unit and by the HOA you can see HUGE repair bills in the future. This may also affect the rent amount you can expect to receive going down the road.
Another thing to consider is the physical condition of the property and everything that you will be responsible for if it is to fail during the tenancy. There is nothing wrong with purchasing a fixer upper, but be realistic in your budget both in terms of money and time. Factor the lost rent into your budget and make sure you are not taking on to large of a project before it is to late. Make sure to have qualified professionals explain everything that may be an issue to help in your decision. Your Realtor is a great resource as well, just ask!
Insurance costs can often be a much larger drain on your income than most new investors think so it is important to determine what you need ahead of time so you can factor this into your budget. Determine if you want to pay a higher monthly premium and save less for a deductible, or you can gamble and take a lower premium with a higher deductible and save for when you need to make a claim. Start calling companies in advance to determine the difference in cost for these services so you are not surprised when you are in escrow.
Another thing to consider is if your home is in a vulnerable area to natural disasters which will increase your insurance premiums. In San Diego, be especially mindful or earthquakes, floods and fires as those are all realistic disasters in San Diego.
Being a landlord is MUCH more work than most people realize, so you should consider whether you want to deal with a plumbing issue at 3am, or just pay someone else to deal with it. Our in-house property management team, Welcome to San Diego Management, provides full service management for only 9% and
Tenant Placement Services for 6% for landlords who want to manage the clients themselves. Some investors think these fees are well worth the time savings, while others chose to save their money to deal with the problems themselves. The choice is up to you, but is something to carefully consider in your investment!