Private Condominiums: A Guide to Buying and Renting

Buying a condominium can be an exciting, as well as a nerve-wracking experience. Therefore, before you make the decision to purchase your first condominium, you should understand the laws and regulations governing this type of real estate investment. In this article, we will explore the basics of buying an apartment and the potential pitfalls you should consider before proceeding with your purchase.

 

 

What is a Condominium?

A condominium is a type of residential real estate where a single plot of land is divided into multiple units called “condos.” The owners of these units are either the condominium’s developers, individual investors, or both. Like private houses, the main difference between condominiums and private housing estates is that the ownership of a condominium is divided into individual units. This allows developers to create larger and more profitable units as well as to construct higher-quality buildings because each unit is not competing for the same investment dollars as every other unit. In addition, apartments are usually situated in high-rise buildings, so the combination of high ceilings, large windows, and proximity to nature make them a great option for city dwellers who want to experience the beauty of living close to the outdoors.

 

Types of Condominiums

Ownership - This type of condominium allows individual ownership of the condominium units. The ownership type is suitable for those who want to own their property, and either can afford the hefty price tag of private property or are determined to make their own fortune.

Leasehold - This is also known as leasehold or leasehold condominium. In this type of condominium, the developer owns the property and leases to the tenants. Typically, leasehold condominiums are limited to a period of 30 years, and the tenants have to pay a yearly lease charge.

Cooperative - A cooperative is an association of individuals who own shares of a company that owns the association’s properties. The shareholders contribute either money or their labor and share in the profits generated by the association.

Public Housing - Public housing is a type of residential property owned by the government. These properties are cheaply priced, located in affordable neighborhoods near schools and parks, and are managed by government agencies.

Hotel/Guesthouse - A hotel is a type of commercial property built to serve as both a residence and a business. Usually, the property manager owns the shares of the hotel and rents out only the rooms for short stays. On the other hand, a guesthouse is a residential property that advertises short-term rentals.

Affordable Housing - Affordable housing is a type of public housing built to provide more affordable housing options for first-time homebuyers and low-income individuals.

Mixed-Use Development - This type of real estate development involves a combination of residential and commercial properties. Mixed-use developments are often located along transport corridors.

 

Benefits of Purchasing a Condominium

Long-term investment: The most significant benefit of purchasing a condominium is that it is a long-term investment. In fact, the typical condo investment period ranges from 30 to 40 years.

Easy to sell: Another significant benefit of buying a condo is that the ownership of a condo is easy to sell. A condo investor does not have to worry about the property value depreciation.

High rental returns: The best part about condo investing is its high rental returns. For example, a median one-bedroom unit could yield a rent of $440 per month.

Tax benefits: Other significant benefits of purchasing a condo include the tax benefits it offers. For example, you can claim a depreciation allowance of up to $175,000 against the purchase price of your condo. You can also claim transfer taxes, property taxes, and vacancy periods.

Leverage: Another significant benefit of buying a condo is that it allows you to leverage the purchase price to receive a higher return on your investment.

 

Pitfalls Associated with Buying a Condominium

Capital gains tax: The most significant pitfall of buying a condo is that it involves a hefty capital gains tax if you decide to sell your condo after holding it for at least one year. If you sell your condo after holding it for less than a year, you will have to pay a tax of 10%. If you are unlucky enough to sell your condo at a loss, you will have to pay a tax of 10% of the sale price.

High maintenance fees: Another significant pitfall in buying a condo is that you may have to spend high maintenance fees. Some properties even charge a monthly maintenance charge (MMT).

Poor neighborhood selection: One last significant pitfall of buying a condo is that it may need to be a better neighborhood selection. Some homeowners may have yet to observe the apartment’s condition and may be investing in a bad neighborhood.

High purchase price: The final significant pitfall of buying a condo is that you may have to fork out an exorbitant purchase price.

 

Conclusion

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Sources: https://www.investopedia.com/terms/c/condominium.asp