Is A Condo The Right Investment For You?
If you invest in real estate long enough what you will find is that there are many differing opinions on what works and what doesn’t. If you ask ten investors if a condo is a good investment half of them will say absolutely not while the other half would be open to the idea. Like anything else in the real estate business it is always best to do your own homework and form your own opinion. While condo investing may work for one investor in one area it doesn’t necessarily mean it will work for you in your market. If you are considering purchasing a condo or townhouse here are a couple of pros and cons.
PROS Of Condo Investing
- Price. In real estate you should be careful about making blanket statements. That being said, on average condominiums and townhouses are typically less expensive than even single family properties. This allows you to invest in markets that may have previously been out of your price range. Unlike with three and four family properties condos offer the same low down payment financing options as a single family property. Reduced price points should not be your primary reason for looking at condos but it can help you stretch your buying dollar.
- Reduced Demand. As we mentioned earlier there is a segment of investors who feel that condos just don’t make great investments. This is great for all those who feel they do. The reduced demand makes it easier to pursue new properties as they hit the market. Instead of battling with a dozen other investors over the same property you can pick and choose the best of the bunch. This allows you to get the condo you want usually at a price that works for you.
- HOA. It is possible that the homeowners association (HOA) can be viewed as a pro and a con. Let’s start with the positives. Condos are a great fit for first time homebuyers and older buyers who don’t want to deal with the everyday hassles of traditional homeownership. With the average condo grass cutting and snow removal are included in the monthly association fees. This is in addition to any other amenities including use of a pool, tennis court, clubhouse area and parking. All of these perks make condo ownership very attractive for buyers on their first or last home.
- Property Management. There are many investors who do not think of condos as a possible rental option. Given the restrictions that many associations have renting is often very difficult. In the right complex however it can be a viable option. If you can rent managing a rental property is often much easier than the average single family. As we mentioned most of the exterior items are taken care of by the association. Some big ticket items, like the roof, can also fall under the association’s umbrella. Instead of hiring a dedicated property manager you may be able to save money self-managing the property.
CONS Of Condo Investing
- Resale Values. The best way to estimate the value of a property is by comparing it to whatever else is on the market. Buyers use comparable sales and current listings as their guide. The same is the case with condos. The difference with condos is that their comparables are often within the same complex. If one condo sells for $200,000 it is very difficult to justify listing yours for $225,000 without a significant amount of improvements. Even if there are improvements a 10% increase over the next highest sale is difficult for buyers to deal accept. In most cases you are at the mercy of the complex and any appreciation moves slowly.
- Association Restrictions. As great as having homeowners associations take care of the condo it comes at a price. There are numerous restrictions that every owner has to deal with. These restrictions include everything from the color you paint your deck or fi you can hang a flag from the garage. As the owner you may not be allowed to rent your condo unit. Most complexes only allow a certain number of non-owner occupied properties. Even though you own the property you are not necessarily allowed to do with it what you like.
- Fees And Other Restrictions. Due to the strict rules that many associations have in place rehabbing a condo needs to be done in stages. Before you do anything you need to seek out the property manager of the association and understand all of the bylaws. If you are able to rent the condo you need to check your numbers to see if it works. Once you factor in the association fees the net cash flow may not be where you like. However there has been a growing trend towards condo rentals over the past few years and the association amenities play a big part. If renting is a consideration you need to walk the line between high association fees while still watching your bottom line.
The right condo in the right complex can offer tremendous upside. However there are a number of factors that have to fall into place for the property to be successful. Never blindly dismiss a condo based on someone else’s experiences and opinions. Nine condo deals may not make sense but the tenth one could be the home run you have been waiting for.