What do you wish you had known or asked before you bought your condo?
August 27, 2014 6:26 AM   Subscribe

We are thinking of buying a condo. We would use it as a rental, so most likely we would never live there. Aside from college, many moons ago, we've always lived in single family homes, so not much experience with renting or apartment life. What are the right questions to ask, or the right things to consider, before making this leap?
posted by vignettist to Work & Money (15 answers total) 8 users marked this as a favorite
Are there any limitations in the condo association's documents about renting--outright bans or limitations on the number of units that can be rented? Can your local rental market support rents sufficient to cover any mortgage payments, condo fees, and upkeep? Can you qualify for a mortgage for an investment property? Are you going to cover any/all of the utilities? Are you going to do the management yourself, or hire a company? Who will screen your prospective tenants? Do you know how to do that? Are you sufficiently familiar with federal and your local fair housing laws? How will you get rid of a problem tenant while complying with local laws? How long can you afford to have the unit sit empty without going broke? Is the unit deleaded, and do you have any obligations to delead if there is a young child in the unit? Do you know how the passive activity limitations under the federal and any local tax law will limit your ability to take deductions on the rental property? How will the additional surtax on investment income affect your overall taxes? How will you limit your personal liability with respect to the property (e.g., hold through an LLC, S-Corp, etc.)?

Plus, of course, all the regular questions about buying a condo--any assessments planned, what's the state of the treasury, how well is the condo association managed, and your usual how old is your water heater, how is the electric, etc.
posted by Admiral Haddock at 6:40 AM on August 27, 2014 [7 favorites]

Seconding reviewing the condo association's documents (declaration and bylaws); many condos have limitations on renting.

Also make sure that the condo's reserves are in good shape, and ask if there are any large projects planned that might require a special assessment. (Will they need a new roof/boiler, and if they do, are they suddenly going to ask you for five grand?)
posted by Comrade_robot at 7:22 AM on August 27, 2014

I think the biggest thing for me would be whether you could afford the mortgage payments WITHOUT the rent payments. Renting can be iffy -- a unit could sit empty for a while, some big repairs could be needed that would eat up the rental payment for a while (I'm thinking of the year that our unit needed TWO new ovens and a new refridgerator...that must have been crazy for the landlord, but what can you do -- you can't leave tenants without major appliances for more than a couple of days, so you have to pony up the cash pretty much immediately), and/or you could end up with a nightmare tenant who refuses to pay rent and needs to be evicted, causes huge damages, etc. etc. Think about how this would affect your financial situation in the worst case scenario so you don't get surprised.
posted by rainbowbrite at 7:22 AM on August 27, 2014

Admiral Haddock was comprehensive, but here are a few more ideas to think about:

What's the policy on renovations? Can you do any work yourself or are you required to use insured professionals?

Check the noise levels of the apartment - visit during evening and early morning hours when your tenants would expect quiet to make sure there's not a problem neighbor (of course, one could move in later, but better not to walk into a problem). Also check if there are any complaints lodged with the association about any of the condo's close neighbors.

Will the association expect a cut of your rental income (unusual in condos, really common in co-ops)?

Price out insurance for the condo (with very, very good liability coverage). Make sure you factor that into your costs.

Is this a condo to rent out full time, or a vacation condo that you'll rent out by the week or month? If it's the latter, factor in regular cleaning costs, the cost of having a local agent (or you) show up each week to give the renters the keys, etc.
posted by snaw at 7:26 AM on August 27, 2014 [1 favorite]

All of Admiral Haddock's questions. Also, are there limitations on the number of occupants or pets? Often lessors have SO/friend move in after the fact. What will the governing board think of that. How is parking arranged?

Personal anecdote: I own a condo in a development controlled by a board of directors that really resents the fact that the bylaws allow rentals. Little things like parking spots, pets, outdoor decorations, grills that may not be an issue if it were an owner occupant tend to attract a lot of attention when its a tenant. See if your agent has an idea of the the personality of the governing body. If the agent doesn't know or you don't have one, maybe contact the board directly.
posted by greasy_skillet at 7:31 AM on August 27, 2014

The Admiral has you well covered, but you should also talk to the condo management office about what repairs they will handle, what happens if there is a 2 am pipe burst (should the tenants call them? you?), what about lock-outs? What fees/fines might your tenants incur as residents that will get billed to your monthly assessments--make sure you account for that in your lease or be prepared to eat those costs.

Also, as a landlord you need to know the laws about holding security deposits, returning security deposits, taking deductions from security deposits. You should also know ahead of time who to call if you have a problem with a tenant--do you have a lawyer to handle evictions or other lease enforcement matters? Do you know which local landlord-tenant organizations will assist landlords? Will they charge for assistance?

It's important, too, to know the character of the building and match your tenant to it. This is a delicate balance, of course, because you won't want to discriminate and you are not going to act with malice, but a hard-partying tenant in a building of quiet-living people is going to cause lots of problems, and a quiet-living tenant in a party-building is going to complain a lot.

You'll also want to decide whether you're comfortable with shorter than a year term leases. Whether you'll permit subleases. Figure out ahead of time which locksmith, cleaning service, plumber and electrician to develop a relationship with so you can turn the place around between tenants as quickly as possible. Every day without a tenant is a loss in your books, and it's not easy (and it's expensive) to turn a place around between midnight on the last day of the month (when the lease ends) and 9:00 am on the first (which is the earliest most new tenants will want in). So maybe you end your lease at noon on the last of the month, make sure the tenant knows.

Some tenants are wonderful--they pay the rent on time (or in advance), take excellent care of your property, and never bother anyone. Some are constantly complaining because they don't like the color of the walls in the kitchen or the terms of the lease which they signed. Remember, that you don't have to renew a lease with a tenant who annoys you. Also, remember, sometimes it's in everyone's best interest to compromise. Letting an asshole tenant out of the lease early is sometimes the best move, even if it means you take the between-tenants financial hit sooner than anticipated.

Decide a lot of things before your first tenant moves in. In addition to knowing which repair people you will call, know where you will buy the replacement fridge (and how much you're willing to spend) when it breaks. Decide whether you will allow pets or let the tenant to paint the walls. Practice saying "No, your lease prohibits [dogs/sublets/mounting televisions to the wall] and it's not negotiable" without explaining why, without trying to justify your position, without trying to make the tenant believe you're a nice person. Of course, you're a nice person, but your reasons for writing a lease that prohibits X are valid and not open for conversation. Have a dedicated email/phone number for your tenant. Keep all your receipts.
posted by crush-onastick at 8:10 AM on August 27, 2014 [1 favorite]

Oh heck yes: many condos have a limit on the percentage of units that can be rented --- this is because all too often, renters don't have nearly as much interest in maintaining it as a decent place to live (it's not their property!), and pay far less attention to building rules (let me tell you about some of the renters in my building....)

Condo association fees: how much is the monthly condo association fee, and does it include utilities (gas, water, electric)? If it does, then how are the utility costs divided --- per unit (example: 20 condo units mean each pays 5% of the total) or by square footage (i.e., bigger units, like 3-bedrooms, pay more than 1-bedrooms, on the assumption more people live in the bigger units). If it doesn't include utilities, then approximately how much per month would that add to the total cost?
Move-in fees: does the condo association charge move-in fees?
Parking fees and passes: is there assigned parking for each unit, or more simply X parking passes per unit? How about guest passes, how often and how many are allowed per unit?
Amenities, like pools and gym rooms: do they require passes or keys? Can you (or your tenant) get guest passes to the pool, how many and how often?
If its a security building: who provides/pays for exterior door keys, you or your tenant?
Number of residents per unit: this one is often a city ordinance, not just condo association rules; there's often a limit on the number of people allowed to live there, based on the number of bedrooms.

And of course you'd have to be sure to give your tenants a copy of the condo by-lays and rules, so they know about things like noise limits; you'll also have to make sure it's clear who takes care of what maintenance and repairs, and who they call in an emergency.
posted by easily confused at 8:13 AM on August 27, 2014 [3 favorites]

Once you find a place you like, crunch allllllll of the numbers, both money in (projected rent (pick a conservative number), tax breaks) and money out (mortgage, HOA dues, money set aside for improvements, insurance, taxes on rental income, etc.) and decide whether the potential risks and rewards are worth it when compared to other investments. If you're not planning on spending any time in the condo, this should be no different than any other investment vehicle, be it an index fund or a REIT or a minority share in a small business. Consider also that depending on how you handle rentals (agency? personally?) a condo could be a lot more work than holding stock. It also comes with a lot of potential pitfalls (getting sued if a tenant falls in the shower and breaks his neck, inability to find tenants, money lost on the sale). Whether the potential income is worth the risk will depend on the housing market in your area and your personal risk tolerance, but don't make a final decision until you have a very clear idea of the potential upsides and downsides.
posted by craven_morhead at 8:13 AM on August 27, 2014

Get the past 5 years minutes of the meetings of Board of Directors. A wealth of info in there I am wagering.
posted by Freedomboy at 9:17 AM on August 27, 2014

I think your biggest concerns are actually what life will be like as a landlord, because those issues exist regardless of the kind of unit you are renting. The others have that covered, but be very clear on the tenant-landlord laws/code in your jurisdiction. Most cities or counties have an office that can get you more information on that. Understanding your rights and obligations at the outset will save you heartache later. Being a landlord is a major undertaking and requires more investment of money, time, and energy to do well than most people anticipate.

In terms of the condo issue, I spent the last few years living in a rented condo. The biggest issue that seemed to come up for us was that, legally speaking, we didn't really exist to the condo association. Their whole relationship was with our landlord, and while the association permitted a certain percentage of rented units, we didn't/couldn't interact directly with them. If there was an issue with the building, with parking, with a common area, with passes or permitting, with a condo development policy or something the management office needed to handle, we had to send that request to our landlord, who would then interact with the management. Similarly, we often didn't find out about things happening in the community, like construction or repair work, because our landlord didn't pass along the information. If we had violated a rule, caused damage, or done something that triggered a fine, our landlord would have been the person liable.

So, make sure you get clear on how the association handles rental units, especially when it comes to things like how amenities (parking? pools? gyms? keys? etc) are handled, make sure the tenants get a full copy of the community policies, and hope you get tenants who follow those policies. And with multifamily dwellings, since it's not always clear who is responsible for what, make sure you figure that out in advance. Some things the association will probably handle - the big example that always comes up is roofing, or parking. Some utility issues, like gas leaks, require a direct call to the utility company. Some things you will always be responsible for, such as appliances and conditions inside the unit. Sometimes, it's not immediately clear - what happens if there's a plumbing issue? Figure that out in advance, make sure your tenants know who to contact when something occurs, and make sure you've already picked out your handyperson/plumber/appliance source of choice, so you're ready when it's ten below and the furnace dies (happened to us), or the refrigerator fails three times in one week (ditto), or the toilet explodes (thankfully, no).

And for the love of god, if you can, require renter's insurance as part of your lease terms.
posted by bowtiesarecool at 10:22 AM on August 27, 2014 [1 favorite]

Oh also, the big thing I'm forgetting--size of the building. The condo I lease out is in a 125+ unit building with on-site maintenance. The one I live in is a 6-flat, with no maintenance crew but the owners. I would not buy a condo to rent out in the latter situation, but I would do so in the former situation. If there is no building maintenance staff, you will need to send someone to shovel snow immediately, for instance, which is costly or disruptive if you have to do it yourself. It's impossible if you live far away.

Our neighbors have tenants and their individual condo in the 6-flat where I live had a major plumbing issue last summer. The owners and the tenants would have been in a world of hurt butfor the fact that we're a very collegial building and all the owners rushed to the rescue in place of the landlord-owners who are two states away. If it were mostly renters or people who are less collegial with their co-owners (or co-owners who resent an absentee owner), you can bet they would not have stepped in to help bail out and give the plumbers access at midnight.

Contrast with my rental unit in the huge building with on-site maintenance. When the neighbor's dishwasher leaked through my unit's bedroom wall, the tenants called building maintenance in the middle of the night, who handled the entire repair (including replastering, but not painting) and called me in the morning to let me know what had happened. If you can't/don't want to be available 24/7 and can't/don't want to pay a property management company to be available 24/7 (which my mother did, when she leased out her mother's house), you do not want to be landlord of a unit in a building without 24/7 on-site management for emergencies.

Also, check your local codes, you may not be legally able to require that your tenants have renter's insurance. Still, it's worth strongly recommending.
posted by crush-onastick at 10:40 AM on August 27, 2014

This may be an outlier situation, but if your tenant is regularly causing damage for other units, please be proactive about getting them out. A friend of mine lives in a condo she owns, but the unit directly above hers is rented, and she's had major structural damage to her home because of urine from her upstairs neighbor's dog. Not once, not twice, but three times. The owner pays for all the repairs, but doesn't compensate her for lost work time (from being home for contractors) or loss of habitability, and won't evict the tenant.
posted by KathrynT at 10:42 AM on August 27, 2014

Familiarize yourself with the actual eviction process in your jurisdiction.

Not what the laws say, but what actually happens when someone tries to enforce those laws. These are two different things, and only the latter one matters.
posted by aramaic at 11:22 AM on August 27, 2014 [1 favorite]

Condos sometimes are something that you pay for and only own for a certain number of years before it goes back to the condo association. You'll want to find out if that's the case and figure out if this will be a good investment for you over that time period.
posted by yohko at 1:39 PM on August 27, 2014

Make sure you have a rock-solid understanding of municipal/county/state laws related to renter/landlord rights and responsibilities. This includes things like: are landlords required to pay for tenant relocation costs if the tenants are displaced for various reasons; if you decide to sell your condo, how much notice must you give to your tenants, including right of first refusal; can squatters be legally evicted, and if so what is the process; etc. Consider a written lease agreement that is tailored to your property rather than using a boilerplate version from Legalzoom.

I second previous recommendations to strongly advise tenants to consider renters insurance. Even if it isn't a formal requirement, it can be written into the lease (e.g., the undersigned have reviewed the recommendation to purchase renters insurance and have declined).
posted by late afternoon dreaming hotel at 2:20 PM on August 27, 2014

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