9 reasons why is buying a condo a good investment
If your current focus is on the idea of buying a condo, most likely you ask yourself «Is buying a condo a good investment?». It depends on various parameters both financial indicators and other features and opportunities that you get in addition to the living space. Based on these characteristics, you can determine your expenses and income, and then calculate the return on investment (ROI).
Before answering the question to which this article is devoted let’s start with what is a condo.
Condo: what is it?
A condo is a private residence within a larger real estate - a high-rise townhouse or a multi-unit building. Under US law, condo owners can rent out this type of property to tenants for the short or long term.
A condominium purchase entails the obligatory monthly payments, which are evenly shared among all condo owners. These payments are used to service common areas accessible to all community members (gym, pool, hall, courtyard, etc).
It seems condos are similar to apartments. Yes, it’s true, but there is one difference: each condo has its individual owner, while the apartments belong to the owner of the entire building who can rent out any of them. Don’t forget to take this nuance into account if you have to choose: buying a condo or an apartment.
Next, we list the advantages that buying an apartment has for investment purposes.
The main advantages of investing in a condo
We comprehensively studied the topic that many people are interested in and found at least nine key reasons to buy a condo for further renting out. Below we bring the list of them to your attention.
One of the main financial advantages for investors is that condos cost less than a family house on the real estate market. You can check this by comparing offered prices for condos and other types of real estate in the same area. Therefore, purchasing a condo for investment purposes is more affordable since a buyer can save part of the money at the transaction stage and thereby reduce expenses.
2.Early bird offers
Reduced deposits at purchasing a condo that is in the development process or under construction also do condos appreciated for buyers. Unlike investors in finished real estate, you may invest less than 20% of the market condo value. Agree, to take such benefits, you can wait until the condo is put into operation.
Another advantage of condominiums is that their residents have access to various common amenities that the other types of real estate don’t offer: a swimming pool, a fitness or yoga center, SPA, playground, etc. This makes the condo more preferred for the renter. In turn, this allows the condo owner to establish a higher rent payment for the residence and receive a higher income as a result.
4.Fewer individual expenses
Condo fees have a plus — they partially cover the payments that homeowners must pay: utility fees (for water, electricity, garbage disposal, cable, and more), building insurance fees, etc. You can specify the exact list of included services and fees by contacting a realtor of the selling condo that interests you.
First of all, if you’re a condo owner, maintaining is out your direct responsibility. You don't worry about mowing lawns in the summer, removing snow in the winter, or repairing building elements on your own. Your home is fully serviced by a maintenance service, which is paid out of your monthly fees. This is also a fairly strong argument in favor of condo investment for those who don’t want to spend their time on such types of work.
Secondly, condo maintenance expenses are lower than similar costs that single-family or multifamily property owners have to pay. So these additional costs won’t greatly reduce your budget.
Condo residents are provided by enhanced security. Before getting to each unit, every visitor needs to use the intercom, which notifies when the front door is opened with a sound signal. Many tenants who try to avoid unwanted guests like this condo feature, so they are willing to pay extra for it.
If you want purchased property to become your good investment, tenants must have a good demand for it. And for this, a condo must have a good location. Often condos are located in a popular area for buying or renting living space (for example, in the city center or close to vacation places).
Due to this feature, buying a condo to rent out in an attractive place, you can offer a more expensive price to the tenants and receive a higher rental income. And it can be thousands of dollars a week if the condo you owned is located in the resort region on the seafront and you lease it out during the good season. Using special tools, such as Mashvisor Property Finder, you can find a property that is suitable for purchase and is in demand among tenants because of the desirable location.
In addition, if you suddenly have financial difficulties, you can quickly resell the condo on the real estate market and get the needed money. While you would have to wait much longer for the buyer of your home, and therefore the income from selling this type of property. But this mainly applies to the condos with a convenient location in hot areas. There will be few who want to buy property from you in a disadvantaged city zone.
9.Pride of condo ownership
Although this aspect is not directly related to achieving investment goals, it’s also worth mentioning. As you know, not all condo owners can rent out their units. For this reason, those who got this opportunity have a sense of pride and take better care of their property. They understand the more attractive offering living space, the higher income from tenants.
Potential disadvantages of condo investments
Imagine that you have found the residence you liked, have assessed all its advantages and the average rental cost of a condo in a suitable area. And now you think you’re ready to buy a condo. «Good investment!» your inner voice whispers to you. But it’s too early to draw conclusions. Moreover, making a purchase decision shouldn't be instant. Investing in a condo has not only pluses but also its drawbacks. Let's consider them in detail.
1.HOA fees and restrictions
You need to know each condo has Homeowners Association (HOA) that assesses monthly fees for the community members. HOA fees are usually quite high (from $100 to $300, and sometimes even above $800 per month).
Separately, it is worth noting that a condo owner and its tenants must adhere to the general rules established by the association. HOA rules typically apply to the possibility of settling with pets, use a parking space, etc. Besides, many communities set limits on the number of units that can be rented out. Therefore, before purchasing a condo, be sure to check with a real estate agent whether this limit has already been reached. Also, take an interest in being of other restrictions that may limit both your freedom as an investor and the freedom of future tenants.
2.Mortgage getting difficulties
When buying a condo, you may have difficulty obtaining a loan. Most lenders approve the application for a mortgage only if special conditions are fulfilled (the potential owner occupies at least 50% of the building, and the condo has an association with a positive financial reputation). Buyers of the other types of property with more expensive value usually get loans more easily because in this case, banks receive a good profit. But many condos are sold at very low prices and this reduces the interest of financial intermediaries. Therefore, if you don’t have your savings, it becomes quite difficult to become the owner of a condo.
3.Time delay renting out
If you expect to rent out a condo immediately after buying it, we will disappoint you. You should be aware that some lenders may require the owner to live in the residence for the first year since buying real estate. And only after this time, you will have the opportunity to use your condo as a source of income.
A quick-time condo selling is opposed by a slow real estate valuation. In this regard, you need to be patient: for condo owners, the evaluation process takes a longer time than for home sellers.
As we have already noted, the cost of new condos is lower compared to other types of real estate. But when it comes to reselling condos, the assessed value because of wear and tear is not particularly pleasing to the seller. One of the possible ways to increase the condo’s market value is to modernize it. But keep in mind that for this you may need permission from the homeowners association.
6.Bad behavior of neighbors
One of the condo features is the presence of neighbors nearby (on one floor, and/or lower, and/or higher). And some of them may disturb community order and receive complaints from the other condo residents. This fact can lead to a frequent changing of your tenants, which finally will negatively affect your investments. Because while you are looking for new tenants, the condo will remain empty for some time and won’t bring you income.
As you see, buying a condo has more potential advantages than possible drawbacks. And the question «Are condos a good investment?» more often can be answered in the affirmative form. But before investing, we recommend you take into account all the positive and negative features of each condo and make a final decision based on it. It will be better if the analysis process takes weeks or even months of your time, but during this period you can thoroughly find out all nuances and make the right choice.
And to get a true picture of the property option, we advise you to ask for documents of the condo association and carefully read them, preferably together with a competent lawyer. Thanks to this, you protect yourself as much as possible from various unwanted surprises that would appear after buying a condo.