When you first purchased your condo you may have wanted to settle down in your own space and enjoy the advantages of owning your own space. However, condos are typically rather small, and your current space may not meet your growing needs for storage space, bedrooms, a large yard and more. You could sell your condo in your plan to move up to a larger home, or you could turn your condo into a rent-producing investment property. This is a major decision that can dramatically impact your finances now and for years to come, so carefully explore the option of renting out a condo by focusing on these points.
Research the Rental Market
Renting out a condo sounds like a great deal, but before you make this decision, you need to know how much money you can realistically rent your property for. Even if the rental market is strong, there are many factors that can affect the rent for your condo. Its location, size, condition and available amenities will play a major role in this. You may be able to get a good idea about a reasonable rent to charge by looking for other condos for rent in your complex. However, you also need to ensure that the interior condition and layout is similar to yours before you make this decision. Keep in mind that some units may be priced too high or low for the market, so it is wise to locate several comparable properties before you make the decision about what your condo could rent for. Your real estate agent may be able to quickly provide you with more information about a reasonable rental rate for your condo.
Think About Property Management
You must also think through the practical matter of renting out a condo. Will you self-manage it or hire a property management company? With a single condo unit, you may have minimal tenant concerns and repair issues that arise. However, you will still need to respond quickly if a problem does develop. If you are very busy or have an inflexible schedule, this may not be ideal or practical. In addition, if you self-manage, you need to worry about collecting rent payments each month, finding new tenants when the unit becomes vacant, dealing with evictions if your tenant does not pay rent and more. Renting out a condo may be easier to do when you use a property management company, but these professionals charge a fee that can eat away at your profits. Because this can affect your daily life as well as your finances going forward, this decision should be made before renting out a condo.
Crunch the Numbers
After you have explored these factors, it is time to sit down and put pencil to paper. You now know the gross monthly rent your property could generate. Add up the current mortgage payment, taxes, insurance, utilities if you will pay them, condo association fee, repair and maintenance estimates and management fee if you plan to use a property manager. Will your property net a profit for you? If not, could you make practical changes to generate a profit? For example, could you raise rents slightly or ask the tenants to pay the utilities?
Explore Homes for Sale
You also need to learn more about homes for sale in your area that meet your needs before renting out a condo that you currently live in. Try to determine the approximate sales price that is reasonable for the size and style of home you desire. Consider how much money you have available to use as a down payment, and use a loan payment calculator to estimate your monthly payments. Some people may realize that they need to sell their condo to use the equity as a down payment. However, if you have ample funds in your savings account to use as your down payment, renting out a condo may still be a great possibility.
Think About Your Taxes
Your real estate activities can impact your taxes in various ways, so you should explore the impact of renting out a condo on your taxes. First, understand that the expenses for your condo, such as taxes, mortgage interest, repairs, utilities, make-ready and more, are all deductible when the property is a rental. Therefore, renting out a condo may actually produce a tax loss even if you generate a real profit. This can actually help your financial situation. Second, you may also benefit from having larger tax write-offs for property taxes and mortgage interest on your new primary residence. Altogether, many people will discover that renting out a condo produces great tax benefits. Some people may enjoy a net gain of several thousand dollars or more per year as a result. However, you should analyze your situation carefully to determine if this is true for you.
Analyze the Total Impact to Your Budget
Now that you have a more complete picture about how renting out a condo can impact your finances, it is time to put all of the pieces together. For example, you may net a profit from renting out a condo, and you can count this as regular income in your budget. However, your monthly housing costs will change, and you need to adjust your budget for this as well. You may also be able to adjust your tax with holdings at work to enjoy access to more take home pay. Relocating to a new home can also impact your insurance costs, utilities, commuting costs and more. Finally, focus on how buying a new home would impact your liquidity. You may need more liquidity when you have a rental home, and this is because you will need to pay the mortgage out of your own pocket when the unit is vacant or if the tenant fails to pay rent.
As you can see, there are many factors to consider before renting out a condo. This is a serious move that can often be beneficial. However, you do need to learn more about the real estate market before you can finalize your plans. Turn to Evergreen Properties and Investments for more information about for sale listings and rental rates in the Long Beach area.
From the Author: My name is Dan Barcelon and I believe that Real Estate can be one of the most valuable assets you’ll ever own. I’m dedicated to educating and guiding my clients on how to manage and leverage their homes to create an Evergreen legacy for themselves and their family. I primarily consult both home buyers and home sellers on reaching their personal and financial goals through Real Estate in the following cities of Southern California: Long Beach, Carson, Cerritos, Signal Hill, Torrance, Lakewood, Cypress, Downey, Bellflower, Norwalk, Wilmington, La Palma, and Artesia.
If you’d like to discuss if buying, selling, or investing in real estate is right for you at this time, feel free to reach out. You can call/text me at 562-270-5812, or you can e-mail me at danb@EPIrealestate.biz.