If you have been thinking about making the choice to invest in rental properties but aren’t really sure where to begin, you have come to the right place. The question we are asking today is: Are condos a good investment?
Like most things, the answer to this question is not black or white. In this article, we will discuss why condos are a good investment. We will also provide you with a few cons of condo investments so that you can have the whole picture before making a final decision.
But first, what is a condo? The term ‘condo’ is short for condominium and indicates a building or community of buildings that have separate units owned by individual residents or real estate investors. Usually, some units in a condo will share a wall.
Mashvisor is determined to help you find out if condos are a good investment. To do this, let’s look at some of the most common reasons property investors have for choosing to invest in condos.
Reasons to Invest in Condos
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Condos Are Less Expensive
Usually, condos are the more affordable real estate investment properties. It is typically a lot cheaper to buy a condo than to buy any other type of real estate, like detached individual homes. This is why a lot of beginner real estate investors look at condos as a starting point.
While investing in a condo is a more affordable real estate option, you have to remember to consider condo fees. However, even with these costs, the average condo is smaller and thus cheaper than the average single family rental property.
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Condos Have the Potential to Generate Income
Having a condo for rent gives you a few options. You could rent out your condo long-term and even short-term. If your rental property is located in an area with high short term rental demand because of tourism activity, then you could benefit from using Airbnb during high-peak seasons. Because Airbnb guests are usually just looking for a place to sleep close to city centers and tourist attractions, condo rental properties are typically a go-to choice.
Alternatively, condos are a good investment in some bigger cities like San Francisco, San Diego, Seattle, Chicago, Boston, and New York when rented out as long term rentals. The high rental income that these kinds of locations demand along with the popularity of smaller spaces in bigger cities makes condo investments generate positive cash flow.
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Condos Are Less of a Responsibility
Buying a condo real estate investment has its perks. As a condo real estate investor, you are not directly responsible for maintaining the building or the common areas of the condo. Instead, your monthly condo fees would cover maintenance tasks including mowing the lawn, shoveling the snow, fixing broken utilities, etc. This is one reason that makes condos very attractive to real estate investors.
Related: 10 Questions to Ask When Buying a Condo
Of course, there are things about condo investments that are less attractive to real estate investors. Continue reading to learn more!
Reasons Not to Invest in Condos
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Homeowner Association Fees
Most condos offer services that regular real estate properties don’t provide like a fitness center, a swimming pool, security system, etc. Because of this, the Homeowner Association (HOA) fees can be up to $300 a month depending on the location and quality of the condo. Not every real estate investor will be able or willing to have these added costs when buying a condo, especially if they are a new investor.
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Homeowner Association Rules
Along with the HOA fees, there are strict HOA rules. These rules apply to you and to your tenants. These regulations can be in regard to things like parking or pets. Another homeowner association rule could be related to the policy of renting out your condo. Some associations are more restrictive in that they limit how many condos can be rented out and even how long they are rented out for. You should review the rules and regulations with the HOA overseeing the condo you are looking to buy in order to determine if it will be a good real estate investment or not.
Related: Homeowners Association: What Real Estate Investors Need to Know
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Investment Property Financing
Having enough finances to cover your condo investment can be concerning for first-time property investors. Usually, people will try to obtain a mortgage loan. You should be prepared to put a down payment of 20-25%. In addition to this, mortgage lenders sometimes have stricter requirements which may make it harder for you to qualify for a loan. Even though getting a mortgage loan for a condo is harder than for a detached home, as mentioned, it will still be cheaper.
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Legality
You might be required to live in your condo for some time before you are even allowed to rent it out, according to your lenders. Lenders will also check the HOA of the building of your desired condo to make sure they aren’t currently in the middle of a lawsuit of any kind. Is a condo a good investment in this case? It could be, but the process might be a little more complicated. There is always a risk when buying an investment property of any kind, so be sure to study all outcomes before making your decision.
Are Condos a Good Investment? Other Factors to Consider
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Location
Before deciding on a condo to invest in, you should study the US housing market to learn more about the rental demand in your area and the areas around you. Consider vacancy rates when looking for condo investment properties for sale. Some areas in the US have low vacancy rates, meaning there aren’t a lot of available housing units. While this could mean the cost of the condo will be higher, the rental demand and rental income could be just as high. This will create a greater return on investment when you rent out your condo.
Start analyzing locations and find the best place to invest in a condo using Mashvisor. Click here to get started.
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Home Ownership Rate
Recently, homeownership rates in the US have been dwindling. Most homeowners can be found in suburban and rural areas, while tenants looking to rent are usually searching for units in more urban settings. This means you will find more people looking to rent than purchase a unit if you buy an investment property in the right location. As mentioned, condos are popular in bigger, urban settings. So making a condo investment will give you a better chance to find a tenant.
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Generational Culture
Another factor to study is the changing characteristics of generations. For example, Baby Boomers and Millennials are more likely to rent than buy a home, especially in more urban areas where they are looking to advance their careers. Investing in a condo in bigger cities or smaller cities that are growing economically can be a smart move because you will find a high rental demand.
At the end of the day, there are many elements to examine when deciding if a rental property is worth the investment. Are condos a good investment? Well, in order to decide if buying a condo is right for you, make sure to look at all the points stated previously in order to factor your pros and cons.
Mashvisor has plenty of other resources to help determine if condos are a good investment. Buying a condo can be a great investment if you are wise about the condo you choose to invest in. So be sure to use Mashvisor’s rental property calculator and perform a thorough analysis to find a condo that promises a high return on investment.
Related: Real Estate Investor’s Guide to Buying Condos for Sale