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The Pros And Cons Of Condo Investing

There are many different ways to invest in real estate. What works for someone else may not work for you and your market.  That is why you should never completely eliminate or blindly dive into every new niche that comes your way.  One of the areas that is often debated is whether or not to invest in condominiums.  For every investor that swears by them, someone else is adamantly not a proponent.  Like everything else in the business world, you need to make your own educated decisions.  Much of this will be based on your individual personality, risk aversion, and goals.  If you are considering purchasing a condo, here are a few pros and cons to help you make your verdict more clear:

PROs:

  • No maintenance: With a condominium, you need to think about your target market. This market is typically made up of first-time buyers who aren’t ready for a home or older buyers who are looking to downsize. Either way, one of the main selling points for a condo is the convenience that comes with low maintenance. The owner does not have to cut the grass or shovel the driveway. They can still take care of minor landscaping, like bushes and plants, but don’t need to worry about much else. This may not seem like a huge concern; however, in areas where extreme weather is a factor, this alone can create demand.
  • Amenities: All condos feature amenities in one shape or another. They can range from a pool to 24 hour security. The better the amenities, the easier it is to justify paying the monthly common charges. There are many owners who like swimming, but don’t want to own a pool. The obvious problem is that a pool is a seasonal item and may not be enough to move the needle alone.
  • Price: Generally speaking, condominiums are offered at a lower price point than your average single-family property. There are some exceptions depending on the market, but for the most part, they are lower in price. This makes it easier when it is time to sell.
  • Variety: There are many markets where all properties look primarily the same. With condominiums, there can be some stark differences. The common perception is that condos are cookie cutter and look alike. In reality, many complexes pride themselves on the fact that each condo offers something a little unique.  This holds a level of appeal to certain buyers.

CONs:

  • Rental policies:  Before you consider a condo for an investment, you need to be familiar with the rental policies. Many associations have strict rules against renting. They don’t want to dilute the number of owner occupants in the complex. In addition to rental policies, there may be rules regarding the color of exterior paint, whether or not a deck is allowed, and where you can park. Every complex and association can enforce their own set of rules. Before you make any offer, you need to read the bylaws for the complex.
  • Fees: As great as having amenities are, not every owner is willing to pay a price for them. Association fees can range from under $100 to as much as $300 a month depending on the complex. This is addition to the regular principal, interest, and tax payments on the mortgage. This can push certain buyers over their magic number and make it more difficult to sell the property.
  • Comparable sales: One of the problems with getting the biggest bang for your buck when you resell a condo is that you are being judged against other units in the complex. Listing a property is all about looking at the comparable sales and listings in your area. When selling a condo, every other sale in the complex is a comparable. If the bedroom and bath count of your condo is the same as the others around it, it will be difficult to raise the price much higher than what the comps dictate. Even if you make improvements, it may not correlate to a higher sales price on your end.
  • Limited market:  A condo holds certain appeal but only for the right buyer. This means you need to do everything right to market to these groups. It also means that you may not be able to produce a bidding war for your property. Investors feel the same way the buyer pool does about condos. The more limited your market, the more difficult it can be to sell.
  • Parking: A common complaint from condo owners is the lack of parking space. This makes it difficult to entertain any more than a handful of people. There are always complexes that have more space or larger driveways but the space between condos can become an issue. One of the reasons that buyers move away from renting is for privacy and space. With most every condo, extra parking becomes a focus sooner or later.

There is no right or wrong answer with condo investing. If you see value in a unit and the market is on the upswing, then it is definitely something to consider.  With a condo, you need to know exactly what you are getting into before you get too far.  Ask your real estate agent for a copy of the condo resale package.  This will include any rules and regulations that you need to know.  The more you know about an investment, the more confident you will be.  Investing in condos is no different.

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