Some of the costs to consider are: principal and interest on your loan, PMI if putting less than 20% down, taxes, insurance, condo fee and maintenance fees (as well as future increases for some of these expenses). When I'm working with investors, it doesnâ€™t make sense for them to make a purchase such as this, unless they are getting at least 15% more than what their monthly expenses are. You also run the risk of the condo not being cared for the same way you would care for it if it were owner occupied. Regarding an offer: the seller doesnâ€™t have any concern for what your carrying costs would be if purchasing this as an investment. They only care that they sell it for market value, so they would not take any of this into consideration when reviewing your offer.
FYI... These are the golden egg of real estate. They don't happen everyday. And beware of the lingo that some salespeople use for avoiding the question "Is this a 1st round offering". I love when people use "phase #1" to describe a 2nd or 3rd round of offerings....
If there is deferred maintenance, you will need to be aware of the possibility of any special assessments to cover unexpected expenses.
The other items, of course: Mortgage, Interest, Insurance, Taxes, Assocation Dues, Rent Loss and Vacancy, Legal and Acctg Fees, Eviction fees if necessary, and don't forget to put a value on your time!
Maintenance (in your condo)
Time and gas going back and forth managing tenants/collecting rent
Additional $ to your accountant for that extra form for him/her to fill out
Money to repaint, etc when you change tenants
Utilities for when you do not have a tenant
Separate checking account just for the rental
LLC formation costs to put the name of the condo in (in case you get sued)
Aspirin to relieve the stress of all of the above.
I read some of the answers to your question and I have one last thing to ad. Although not an expense, it is important. Make sure that you are able to rent your unit per the condo docs and I would also try to find out what the percentage of rental units are in the building. Lenders look at that stat and it is also something to keep in mind should you need to sell.
You've already gotten great advice. I just wanted to add that I live near the Edgewater area and have a couple of investment properties there. It is one of the few lakefront areas in Chicago that is still affordable -- a recently discovered gem for most, really. It's changed alot over the last 10 years, and it's becoming more and more popular.
With that said, assuming you are considering Edgewater (I see it is the area of Chicago you selected in your question), consider that the assessments in high rises are extremely high ($300-$1000, depending on building and floor), and that, unless you are paying cash, based on that and your increased property taxes as as a non-occupant will make it very unlikely that you will cover all of your operating costs with the rents the area demands. The assessments along the Edgewater area high rises tend to be higher, too, simpy because many of the high rises are old, so their maintenance is a little more costly.
With that in mind, you might plan for additional out-of-pocket to go towards your carrying costs.
However, if you are looking for a longer-term investment rather than monthly cash flow, Edgewater has shown some nice appreciation over the last decade.
Costs other than the ones mentioned by Patrick and Melissa are utilities (water, gas, electricity, cable, who pays for what), vacancy rate and carrying cost when the property is vacant (even if you have renters back to back, you probably have a few days for cleaning/repairing from time to time); the expenses for advertising and finding the renter(s); cleaning fee (which should be part of rental move out agreement, but you might as well budget for that), property management fee; will you be renting to long term tenants or short term (such as seasonal? then that would cost more). The wear and tear could be higher than owner occupied (or not, but we are talking about worst case scenario); hopefully not, but lawyer fee? Oh, you also might want to purchase refrigerator, washer and dryer if they don't come with the condo.
I have heard about corporate rentals, which might be a good thing to check into also, especially with a nice, lake front property in Chicago. - when I was young, starting out as IT consultant, my first assignment was in Chicago, and I loved the apartment my company had on Lake Shore Drive.
Don't forget the write offs from owning an investment property and the possible increase in your tax bracket.
And I agree, sellers don't really care what you use the condo for. They want to sell for what they can get; so make an offer according to that. However, if the condo complex has a lot of investment properties ; the rental market for the particular range of condos might affect the market value of the condos.
This is it for now.
Even though that market is slow.
I hope you get to look out on to Oak street Beach.
Besides special assessments. There will always be the small stuff.
Garbage disposal, running toilet, add in the union plumber.
I would not allow Smokers or Pets.
I think one of the important things to include is direct withdraw of the rent from the tenants account. This is the most efficient. It will save you time and money.
Out here in AZ tenants have rights, however if they don't pay you can throw them out pretty quick. 30/60 days
Now back in Chicago it is a different story, that process can take you 6 months.
Have a plan if they don't pay.
In addition, a number of condominium associations are trying to discourage rentals by owners so they are charging very high move-in and out charges that can be anywhere from $500.00 to $750.00. Know your costs before buying into the building. Good due diligence is the name of the game. Also, it is advisable to check out the minutes of the association for the last 6 to 12 months to see what is going on in the building and to anticipate any new rule changes that will affect rental apartments by a condo owner.