Do you own a condo? Or are you interested in purchasing one?
If so, you are looking at the untapped financial potential of renting your condo out to someone else.
However, renting out a condo is not as straightforward as renting out an apartment. Because condos have a unique communal-living structure, there are many more considerations to take when renting one out.
That being said, renting out your condo can be beneficial to your financial health.
While a real estate investment is usually a great decision, it is always important to weigh the benefits and disadvantages.
If this is an idea you are entertaining, here are some pros and cons of renting your condo:
The Pros of Renting Your Condo
Collecting rent is a great way to ensure a monthly income. This amount can be used towards the condo’s mortgage to quickly pay down that debt.
You can also use the rental income to reinvest in other properties, pay down your own home’s mortgage or simply supplement your household income.
You can also use that income each month to save for the future – such as your child’s college education, retirement or merely to have a healthy emergency fund.
Having a condo on hand also means that you can move into it if your living situation changes. For instance, if you are looking to downsize or suffer a disastrous event such as a flood or fire to your home.
Renting a property, even a condo, means that you can deduct rental-related expenses when you file your taxes.
These expenses include:
- Property insurance
- Property taxes
- Utility bills (if you include them in the price of the rent)
When you rent out a condo, these expenses are deducted when calculating your net rental income.
Condo management, or the condo association, takes care of most management and maintenance issues.
This applies whether it is you living in the unit or your tenant.
Having condo management address these issues relieves you from the burden of handling any problems that may arise.
The Cons of Renting Your Condo
Condo Rules and Regulations
Condos are homes that include shared common areas such as yards and garages that are maintained by outside help rather than the individual owners.
Those who own condos enter an agreement with the condo association. This makes renting out a condo more difficult than an apartment.
If you rent out your condo, you will have to have confidence in your tenant that they will follow the rules and regulations.
You may also have to check with the condo association to ensure renting is allowed.
Dealing With Tenants
As soon as you rent out your condo to other individuals, you become responsible for dealing with their concerns as well as collecting rent, cleaning messes or dealing with complaints.
Unless you screen prospective renters and find respectable tenants, you could be addressing issues – day and night.
You need to be prepared to have a flexible enough schedule to attend to your tenants.
Selling Your Property
If you rent your condo out to tenants, yet decide down the road to sell, it will likely not happen right away.
Apart from real estate fees, as well as the condition of the housing market, you will need to give your tenants fair notice of eviction before you can list the condo.
All these factors can make the selling process long and costly.
Although many expenses associated with maintaining a rental property are tax deductible, there are some that cannot be claimed on your taxes.
If you plan to offer your condo furnished, you cannot claim items such as furniture, decorations and appliances.
Likewise, major renovations (as opposed to repairs related to maintenance) are not tax deductible.
Claiming Rental Income
Going back to the tax benefits of renting out your condo – you also need to claim your rental income as income on your taxes.
Claiming your rental income may be complicated, since you have to factor in those aforementioned deductions as well as determine your CCA (Capital Cost Allowance).
When you’re renting out a condo for the first time, it is probably best to seek the advice of an accountant to ensure your taxes are properly filed.
Ready to Rent?
Entering a commitment such as renting out your condo is a huge endeavor, but, the disadvantages balance with the advantages.
It’s all about looking at your current life situation and what you can handle.
If you’re ready to embark on this amazing investment, take all these factors into consideration and confer with professional accountants and landlords to get a clearer picture of the situation.
Do you currently own a condo? Looking to buy one? What are your thoughts on renting them out? Let us know in the comments!