Financial considerations with condos and vacation homes

buying a rental condo

Last week, we discussed the potential benefits of buying a resort vacation home that you can rent out to offset some of the costs. If you are considering buying a condo as a vacation rental property, keep in mind these maintenance and financial details that often accompany condo purchases:

Condo HOAs

  • Read the condominium documents, declarations, by-laws, and rules and regulations. Request to see a copy of the last two years’ HOA meeting minutes, board of directors minutes, budget and capital reserves budget. Look for information about deferred building maintenance, special assessments, owner issues and pending lawsuits.
  • HOA dues. Make certain you are aware of the HOA dues. Dues are typically billed monthly or quarterly directly to the owner. Factor these in to your monthly cost of ownership and ascertain what the fees cover. Common areas are usually maintained with these funds to include; building and grounds insurance (not your interior furnishings, fixtures or personal property), snow removal, landscaping, common area, utilities (gas, water, cable), amenities (shuttle service, hot tubs, saunas, pools, tennis courts, laundry facilities), fire alarm monitoring, monthly management company fees and other miscellaneous costs.
  • Special inclusions. In some cases, electric, gas, phone, cable, internet, water and sewer and/or exterior repairs may be included in HOA dues. Be sure to ask what is included and what will be your responsibility as the owner.
  •  Special assessments. Determine if there are any ongoing or upcoming special assessments. Periodically, all associations need to assess for major repairs, replacements or upgrade of common elements, such as paving, new roofs, new exterior siding, landscaping and so forth. Keep in mind that all fiscally responsible HOAs should show a healthy capital improvements reserve in their current budgets.

Cash Flow

Your vacation home investment is made up of net income, capital gain and money saved by not renting from someone else, not to mention the legacy of personal enjoyment and family memories.

Often, net rental income will cover most or all of your operating expenses (HOA dues, property taxes and utilities) and you should break even. However, don’t expect rental income to completely cover your debt service unless the property has exceptional rental income. If you purchased the property with cash, however, you can expect to operate “in the black.”

If you have questions about purchasing a condo as a vacation rental investment, contact us using the form below. We are well-versed in the details of buying and selling property in a resort town.