Q. I’m trying to decide if I should buy my son’s condo. He’s moving into a bigger house but I know it’s a great condo with rental possibilities. What do I need to know to decide?
A. Buying a rental property is a big decision.
There are several items to consider before getting into the landlord business, not all of which are financial, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.
Obviously, he said, the investment needs to make financial sense, and you need to consider what the return on your investment will be after factoring in all the costs.
“The purchase price is only the beginning, you will need to factor in the real estate tax expense, HOA fees, insurance and upkeep of the property in order to determine your actual return,” Gallo said. “You must also consider whether or not you are in the financial position to carry the property in the event that you are unable to find a tenant for any period of time – vacancy costs are often overlooked by new investors.”
You should also consider the potential appreciation or depreciation of the property over time.
Despite common beliefs, real estate does not only go up in value, but in fact can go down, he said.
The location of the property is crucial in evaluating the future value of the property. Simply speaking, is it located in an up-and-coming area or one that is declining in desirability?
Finally, Gallo said, you need to consider whether or not you want to be a landlord.
“Real estate rentals can be profitable but like any other business come along with potential headaches, tenants can be demanding,” he said. “Phone calls complaining of leaky faucets or air conditioning failures can come at the most inopportune times.”
Real estate rentals can be a good way to diversify your investment portfolio as long as you are well aware of all that is involved in making a prudent decision, Gallo said.
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