Many people consider buying a condo to be a good investment, one you could live in for a while and rent out later or buy outright as a rental property. Are these purchases really all they’re cracked up to be? Let’s take a look at the numbers for the Northern Denver area:
Average Sale Price For Condo October 2015: $164,743*
Average 2 Bedroom Apartment Rent in October 2015: $1,515*
Average Sale Price For Condo October 2016: $205,950*
Average 2 Bedroom Apartment Rent in October 2016: $1,519*
The stats are showing us an appreciation of 20% in the past year! Also, in the past years rents have increased slightly, showing the stabilization of the market. There is little risk of a rent decrease. Let’s take a look at what your costs will be if you buy a condo as an investment property.
Here’s an example:
Let’s say you find a 2 bedroom condo priced a bit below the 2016 average, $200,000 to make math easier and
are able to pay cash. You can then rent this out for about $1,519 a month or $18,228 a year. This would be
9.1% back on your investment.
Except you need to also consider expenses**:
-Real Estate Taxes: $700 per year
-HOA dues: $2,400 per year
-Insurance: $300 per year
-Maintenance and Repairs: About $500 per year
-Vacancy: $1,471/year (estimated one month of vacancy)
-Advertising Costs: $200 per year
-Miscellaneous Costs (legal fees, large repairs, etc.): $1,000 per year
This brings your yearly costs to $6,571, making your net for the year $11,657, or 5.8% back on your
investment. This means you won’t turn a profit for 17 years.
Not sounding too appealing? Well there’s something else to take into consideration. In the past 10 years Westminster area condo prices have increased by 38%. The average condo price in October 2006 was $116,570. In October 2016 the average condo price was $205,950.*
Let’s assume home value continues to appreciate over the next 10 years, but slows down just a bit. With an estimated 25% appreciation, your investment property will be worth $250,000 which means you could sell for a $50,000 profit. And let’s not forget about your estimated $113,810 income from rent over the past 10 years (not assuming an increase in rent). Starting to look like a better investment? Other factors yet to consider are appreciation, before and after tax savings (liabilities), proceeds from the sale, return on the investment, etc. For more details check out the information under the Investor’s Corner tab.
Even if you aren’t able to pay cash, the numbers still work in your favor. If you would like to buy an investment property or are ready to sell one, reach out today! My knowledge of real estate and property management make me the perfect partner.
*Condo price data from recolorado.com. Rental data from rentjungle.com.