Association Fees for Condos and Co-Ops in Real Estate Investing

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Rules and bylaws are abundant when dealing with condos and co-ops. Although you can encounter covenants and restrictions attached to typical single family homes, you can count on a long list of rules for condos and co-ops. For example, you might not be allowed to alter the address numbers on your exterior door or change a light fixture by your exterior door. Your choice in paint colors for the exterior of your unit might be limited. And having pets in your own space might be prohibited. The power of the rules is strong, and the number of rules can fill pages of paper. Once you are ready to buy a condo or co-op as a real estate investor, look closely for all of the restrictions that may affect your plans.

Association fees (charged for maintenance of a condo or co-op development) and special assessments (levied when some improvement or repair is needed or desired) have the potential to ruin your investing budget when you own a condo or co-op. You have no real control over the amounts of association fees and special assessments, which might have a disturbing effect on a building’s cash flow. You may have to vote in how things will be done, but your vote will not, by itself, allow you to control your own destiny with a condo or co-op. All you can do is hope for the best. You can look at historical data to build a reasonable assumption of what to expect in fee increases; unfortunately, a development that has been stable for the last ten years could go fee crazy after you buy into it. You simply have no guarantee, unless it’s in your purchase agreement, to prevent fees from increasing regularly. This one factor alone is enough to scare some investors away from condos and co-ops.

 

Association fees usually are fair. They cover a variety of needs and relieve property owners of maintenance headaches. This is an advantage to investors when the fees are realistic and stable. However, because most developments don’t have an annual cap on association fees, owners are at risk. And it’s entirely possible that the fees could be raised on a more frequent basis than annually. For these reasons, be very careful of the fee structure if you buy a condo or a co-op. When you review the documents on a development, determine what the association fee covers. For example, do snow removal and lawn care for the development come out of the fee? Dig deeply to see exactly what your money pays for.

 

Special assessments usually are levied only for big ticket items. If a building needs a repair that is costly and outside the scope of association fees, the price of the repair is placed on the shoulders of the owners of condos and co-ops within the development. Sometimes improvements are not necessary, but desired. For example, if the governing group decides to install a swimming pool, you could be required to pay for a portion of it, even if you don’t support the decision or plan to use the amenity. In some cases, the debt is divided equally, but it also may be divided on a percentage basis, based on the degree of ownership. Have your lawyer pay close attention to all documents, but get a particularly strong opinion on association fees on special assessment regulations.

 

Start Investing in Real Estate as a Young Student

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When in college, the last thing you are probably thinking about is investing. Time spent not up all night studying or working at a part-time time job is taken up with the little social life you have. But ever think about how much money you will spend over your academic career on rent and having nothing to show for it upon graduation. One day I wondered if there was a better way and begin to do some research on the home prices in my area and in real estate investing and I learned a few interesting facts.

The total rent you (and possibly roommates) pay for rent every month on your apartment or house is in most cases equal to or higher than a mortgage payment at this time of low interest rates of the house with very little down. What does this mean, you are most likely paying off someone else’s mortgage while they earn a little profit and huge equity on the property. This certainly seems like you are losing big money renting and its true. If a person takes out a mortgage for a house with as little as 5% down for 20 years and then pays for the mortgage and other associated costs , in 20 years, he would own a house for that small initial down payment. Even selling the house for the price that he bought it , would be an incredible profit (even though he will make an even larger profit for reasons I will mention later).

 

So after looking through some of the realtors websites, I found some houses at 150k or less which had 5 bedrooms, even a couple with the houses already split into apartments with own kitchen, bathroom and electrical meter in each apartment. These types of houses are the best investments. After using some online mortgage calculators and a bit of number crunching , I found that in some cases I could pay for more than the mortgage if I had 4 tenants in the house, I myself could live “rent-free” there. That’s a pretty good deal , especially if those tenants were some reliable friends and you wouldn’t even be dealing with strangers.

 

This sounds pretty good right ? , but what about your done college in say 5 years and you want to then go and get a house with you and your special someone. Well , you have two options , both which would show you how good of an investment buying a house is. The first option is selling the house , Well guess what all those payments that your tenants payed gave you a nice equity on the house. Every case is different about what you can make , but in may case , I could make $30,000 dollars profit from the equity earned over just 5 years after me living for “rent-free” all that time. That would be a nice payment on my student loans. The Second and more profitable option is to continue to rent out the property as long as you wish before selling. After the mortgage is paid off , then all those rent checks are pure profit and you now own a house after paying very little out of your own pocket.

 

And it gets better, on average, it seems that houses go up in value 5% every year , so you can imagine the profit you could be making in 20 years time. Anyways I hope I have at least inspired you to do some research on the topic and see if its the right investment for you. Also, remember this little fact , 76% of the world’s millionaires are real estate investors.