Can You Buy a Condo and Rent It Out?
The simple answer is “yes,” but there are vital things you should know when learning how to rent out a condo. It helps to understand what a homeowners association (HOA) is and the potential challenges that may arise due to various fee changes. It is also essential to learn about the insurance coverages available to property owners or managers, the role of leases and rental applications, the benefits of financial tracking, and how to handle issues such as eviction.
But before that, let’s look at the advantages and potential drawbacks of investing in a condo rental.
Are Condos a Good Rental Investment?
There are benefits and drawbacks when investing in a condo rental. Let’s take a closer look at each.
Pros of Investing in a Condo Rental
The advantages of investing in a condo rental include the following:
- Easy to rent out: Like apartments, condos are attractive to tenants and can help generate quick leads. This lets you avoid extended vacancy periods. When demand for accommodation is high, you have an increased chance of yielding decent and quick income through rent payments.
- Amenities: Condos may feature pools, a fitness center, a working space, and 24/7 security. These creature comforts are lacking in most apartments. The better the amenities in the condo, the easier it is to justify payment of standard monthly charges.
- Less maintenance: A crucial reason to invest in condo rental is the benefits associated with low maintenance. The reason is simple — you may transfer some repair and maintenance responsibilities to the tenants. Additionally, depending on the policy, the condo may have on-site maintenance staff to ensure the building is in good condition.
- Purchase price: Condos may be offered at lower prices than other properties like single-family homes, subject to certain market exceptions. The price advantage makes it relatively easier to purchase and sell a unit.
Cons of Investing in a Condo Rental
While investing in condos can be beneficial, there are drawbacks worth considering, including the following:
- Possible rental policies: While some condo associations have strict rules, others are flexible in their processes and demands. For example, a policy may restrict you from or require you to take several actions to be in good standing with the association, such as meeting guidelines for exterior painting and regulating the number of parking spaces available. This makes it essential to familiarize yourself with the ins and outs of the rental policy.
- HOA Fees: In most condominium buildings, the HOA policy may require paying fees for general maintenance. The amount may differ depending on several factors, such as the building’s location. While this may concern some owners, it helps ensure that the property’s value increases instead of dropping.
- Limited market: Tenants may prefer other accommodation facilities because of curb appeal. However, most modern condos have appealing designs and added facilities. Evaluating your target audience before buying a condo to rent out is essential.
- Difficulties with the buying and selling process: While condos may be easier to purchase and sell due to the price advantage, the processes may be complex. For example, negotiating transactions, preparing lease agreements, and securing all relevant documentation could be challenging. However, you may consult the services of a real estate attorney to take the load off your shoulders.
What Are the Legal Considerations for Renting a Condo?
You may encounter legal issues when renting out a condo, so it helps to keep the following in mind:
1. HOA Rental Policies
The HOA is an unincorporated nonprofit organization comprising property owners residing within a specific condominium building or residential neighborhood. The HOA ensures the maintenance of common areas, as well as making and enforcing rules or restrictions. Generally, when you purchase a condo, you become a member of the organization and must comply with its rules and pay all HOA fees or dues.
Issues may arise between the HOA and residents, requiring legal action to resolve. The common challenges include the following:
- Dispute over initiating legal action against the HOA for selective enforcement.
- Disputes about allegations of restrictive HOA rules.
- Nonpayment and collection of dues.
- Disputes about HOA elections or boards.
- Challenges over the amendment of existing or adoption of new HOA governing documents, such as bylaws and declarations of covenants, conditions, and restrictions (CC&Rs).
- Disagreements regarding the use of common areas.
- Disputes over land use and zoning.
While it may be challenging to avoid these issues altogether, it helps to understand the HOA policies to know your rights and duties.
2. Changes in Fees
A contract typically governs the relationship between parties in a condo rental. The contract or series of contracts may include information about HOA fees and other payments associated with the rental. The agreement binds all parties and may not be changed subject to certain legal exceptions.
Parties may face a legal hurdle when dealing with increasing fees, especially when the contract has no renegotiate clause. For homeowners, it is vital to examine the CC&Rs and review any easements to know whether there is a limitation on the fee increments.
3. Insurance Coverage
Insurance coverage is an essential consideration when investing in a condo. Rental property insurance protects homeowners against certain unfortunate occurrences. Insurance coverage may include the following:
- Property damage: When your rental property and other structures get damaged due to factors including fire, flood, wind, snow, ice, and hail, the insurer may repair or replace the fixtures or reimburse the expenses depending on the coverage.
- Loss of rental income: Where the property becomes uninhabitable due to a covered loss that forces your tenants to move out, the insurer may compensate you for the loss of income during that period.
- Personal property: This insurance coverage is designed to protect your belongings. For example, the insurer may pay for the replacement of your stolen or damaged furniture or appliances.
- Personal liability protection: Landlords may be held liable for injuries on their properties. Personal liability protection may cover expenses such as lawsuits and medical expenses where the tenant or another person makes a claim against you.
4. Prepare a Lease and Rental Agreement or Application
A licensed attorney would be helpful when preparing a lease agreement and rental application. The rental agreement protects the landlord and tenant by laying down the responsibilities and duties of each. Among other things, a good rental agreement can mitigate disputes and provide clarity in case of misunderstandings.
The rental application assesses the prospective tenant by considering personal information, household information, employment history and income, residential history, and background information. The essence is to help the landlord screen the tenant before making a decision.
5. Financial Tracking
Managing your finances is an integral part of investing in a condo rental. Knowing how to track rental income and associated expenses is vital to performing your tax obligations. Federal law requires you to report your rental income for all your properties, which is any amount received from the occupation of use of your condo.
In addition to rent, other amounts may form part of the rental income. This may include services or property received in place of rent, advance rent, and security deposits used as the final payment of rent. It’s also important to know the deductions to take as the owner of the rental property. This may include ordinary and necessary maintenance expenses, the cost of certain materials and repairs, and deductible rental expenses paid by your tenant.
6. Be Prepared to Handle Issues Like Evictions
Sometimes, tenants may be unwilling or unable to pay rent. In those instances, eviction may be the appropriate solution. The Massachusetts eviction laws regulate how you should remove tenants and their belongings from your property. For example, when the tenant fails to pay rent even after several notices, the law requires you to get a court order for eviction purposes. In some eviction cases, the sheriff or constable may even need to be involved to remove the tenant from your unit physically.
Should You Have a Condo Attorney?
Seeking legal assistance is vital when renting out a condo. Real estate investment can be contentious. Attorneys help you evaluate your contracts’ titles, deeds, and terms when purchasing or leasing the property. They also assist you in developing an asset protection strategy and negotiating transactions on your behalf.
Contact Calabrese Law Associates to Work with a Condo Attorney
At Calabrese Law Associates, we assist persons within the Greater Boston Area to acquire, manage and sell residential and commercial condominium units. Our team of lawyers is ready to listen to your needs and take the load off your shoulders. Contact us today with all your questions.
This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.
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