Financial Answer Center
- Introduction
- Financing Your Investment
- So You Want to Be a Landlord?
- Is Professional Management Right for You?
- Buying the Right Type of Property
- Finding the Right Property in the Right Location
- It's Number Crunching Time
- Uncle Sam: Your Partner in the Deal
- Other Real Estate Investments
- Converting Your Principal Residence
- Some Helpful Hints
The type of investment property you buy determines how difficult it is to manage. It also has a direct impact on the amount of income your investment generates. You can go from owning a one-bedroom condominium to an apartment complex. Remember to review your objectives; choose the type of property that fits your goals and your pocketbook.
Condominium
A condominium is a form of ownership and does not specifically refer to any type of building or structure. In a condominium arrangement, you as the purchaser of an individual condo unit, also own a proportional interest in the land, grounds and common area of the development. For a monthly maintenance fee, the condo association provides for the upkeep and maintenance of the outside structure and the grounds. You are responsible for maintaining the interior of your unit.
IMPORTANT NOTE: When analyzing your monthly costs, don't forget the maintenance fee/homeowners assessment. A condo association charges each owner his or her proportionate share of the development's operating expenses. This charge is in addition to your mortgage, homeowners insurance, maintenance, and cost of repairs on the interior of your unit.
Owners and tenants are subject to the condominium association's rules. These rules cover a wide range of acceptable and non-acceptable actions and behavior while living in the condominium complex. As long as your tenants are furnished with a copy of the rules and abide by them, you shouldn't have much difficulty.
The convenient aspect about renting a condo is that the tenants (or owners) are not responsible for maintaining the outside structure or the grounds. The monthly maintenance fee is payable by the owner to the condo association and cannot be billed separately to the tenant, so consider that when you are setting your monthly rent.
Single Family Home
This has become a popular form of rental property. Once the home is converted to a rental property, it triggers some complicated tax issues upon sale of the home. This is covered in detail later in this chapter.
Multi-Family Home
Duplexes and 4-family homes are popular items in many urban areas where space is limited. Of course, you will have more than one tenant to worry about. Repair work is more extensive. The more tenants you have, the busier you will be. Unlike a single family home where the tenant is expected to maintain the grounds, you are responsible for maintaining the property on a multi-family rental.
Apartment House
If you're buying an apartment house, it is advisable to hire a professional manager, unless you are prepared to quit your job and become a full-time landlord. Apartment houses can be found in just about every town in America. They come in all shapes and sizes. Before you buy, make sure your accountant reviews copies of the last three years' financial statements to see just how lucrative the place has been. Evaluate the area and the rental market by contacting some local realtors. Do your homework, since this is likely to be a sizable investment.
SUGGESTION: Get the owner's permission to interview some of the tenants. Determine if they have problems with any aspect of the building.
IMPORTANT NOTE: Owning an apartment house is best left to the serious investor who has the financial resources available to invest, as well as the ability to tolerate the risk of loss.
