Mathematics For A Good Condo Investment
Mathematics For A Good Condo Investment By Paayi

Well, are you planning for your retirement investment and planning to buy the condo as an investment, but before that, you have to figure out how the condo will be a sound investment and need to know the mathematics for a good condo investment.

You can make several mathematical calculations for it as per your need and circumstances. You can also put some questions which should be addressed so that you can correctly determine the answers.

If you have made out your mind to buy the condo as an investment then you need to calculate the following things very accurately:

  1. The annual rent you are going to receive for which you are investing in the condo.
  2. After condo investment, there will be few things where you need to incur some expenses and these will usually yearly costs – Real estate taxes, Insurance fees and other maintenance and repairs.
  3. Besides these there are other additional costs which can happen sometimes, these occasional expenses may include the following things – Legal fees if the eviction is required for any duration, 
  4. You will need to advertise to rent out your property to get the tenants and repair costs if any damages happen due to tenants.

 

Below we will understand how this condo investment can be made to get benefited from it:

In this example, we will understand the condo investments from some mathematical calculations, suppose you need about $60,000 to invest in the condo, and you have paid cash to have the condo. 

Let’s assume it will rent for about $850 per month which comes out to be about $10,200, seeing this figure will excite you as you are getting more than 16.4 percent yield in a year when you divide $60,000 by $10,200. 

But you should also look out the factors responsible for the other expenses as given below:

  1. Real estate taxes are about $1000 per year.
  2. Expenses for the insurance will be about $300 yearly.
  3. It may be possible that for other expenses and maintenance you need another $300.
  4. It may always be possible that the condo will remain vacant for one year and you have already calculated about $850 per month and which will comes out to be $10,200.   
  5. And every time the condo is vacant you need to incur extra expenses for advertisement which will be a yearly fee and that amount can be about $250.
  6. You can also include the factor that may be in every few years you have had some bad experience with tenants. Which will be added to your expenses and additional costs for the maintenance and this cost could be about $5000. If in every five years such things will happen then every year the extra expense incurred will be about $1000.

These extra and hidden costs will be about $6500, and when divided by twelve it will be about $541 (we will take it as $540)per month. 

So, doing the above calculations now your rent will be about ($850 – $540)which equals about $310 per month and which comes out to be about $3720 per year.

So, the net rental yield will be between 7 to 9 percent and which is still a very attractive return. So, you will not only have monthly cash flow but with the time the property will also get some appreciation in the value. 

If you expect the property rates to go up just by 3%, then your property rate will be going up by $18,00, so your property rate comes out to be $61800 from $60000.

If you don’t have much cash to pay for the property you can also opt for finance. You just need to pay interest on the financed loan. 

If you want to buy for investment property plan you need to have about 25 percent to 50 percent down payment to get qualify for the loans or finances. 

Let us assume that you have put about twenty percent as a down payment to be eligible for the credit. It means you have invested $15,000 if we compare the rates mentioned above and rest $45,000 will be financed at the rate of seven percent for thirty years. 

Then you will have to pay about $295 per month to the investment company.

When you consider this monthly payment to the calculated monthly expenses above you will get about $605, which is adding $295 to the estimated monthly costs $310. 

But when you compare it will the rent expected that is about $850 per month, and still you are on the side of positive cash flow. And based on these calculations and estimations you are making one smart investment.

 

What is 'Expense Recognition Principle'?

Have Look At Condo Assessment And Association Fees  

When you have decided to invest in the condo, you should also find out any association fees and also need to evaluate how many times you have to pay for the assessment. 

These assessments are the expenses incurred to cover some common areas of the condominium property. 

The assessments may include things like – landscaping, parking lot, repair and maintenance of parking garage, enhancements to the surface of the home, and other expenses like maintaining lobby area, garden area, and other related things. 

These other costs should also be considered before you are making any plan to invest in the condo and you should include these costs while calculating the returns from condo investments.

One more thing which you should understand before making any condo investment is that how realistic and practical are your assessments and assumptions. 

Below you will find some additional things which you should consider which will help you to determine whether investing in the condo is good or not:

  1. Is your condo property is in the locality where there is a need for rental properties, it is seen that areas near colleges need rental properties.
  2. Is the locality where you are going to invest in growing and getting the appreciation.
  3. Is there are any chances that rental prices will get down due to some external influences?

If you go through all the calculation, make realistic goals and ask practical questions to yourself you will surely make an excellent condo investment.

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