In real estate investing there is no shortage of options available to potential real estate investors and landlords. An investor can choose to purchase a house, an apartment, a duplex house, or even a condo. Personal preference, location, and finances influence the purchasing choices of buyers. Condominium – or condo – is a type of real estate property that is divided into multiple units, with each unit being separately owned. The definition of condo might sound identical to an apartment building; however, the main difference is that condos generally offer a wider range of service or facilities to the people who live there. These services of course come at a price, which is called condo fees and which is paid monthly by the condo owner.
Owners pay condo fees in return for maintenance and running costs of the building. Condo fees include concierge, security services, gyms, pools, carpet and wall cleaning, maintenance of common areas, insurance, garbage removal, and in some cases even utility bills. These monthly fees are decided upon by the condo’s board of directors who oversee the operations of the condo as a whole. Condo owners share the fees equally because each owner has the same rights to access the common areas as the rest.
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The dilemma facing most investors interested in purchasing a condo is a justified one. Condo fees play a huge role in pushing buyers away because it’s an additional monthly cost that could become a bad investment over time. Other, meanwhile, argue that condos are worth it because even single-family homeowners pay costs for maintenance and upkeep without getting the services offered in condos. To understand if condo fees are worth their price, an owner must consider a number of factors.
Are Condo Fees Worth It?
1. Financial Implications of Condos
An interested condo buyer who is aiming to finance the purchase by applying for a mortgage might be pushed away from the idea. Condo fees are generally included in the mortgage calculation when applying for a loan. This essentially means that another cost will be added to the mortgage calculation, which could result in the need of a bigger down payment or more years to pay off the monthly mortgage payments. Thus, a condo does not look like an ideal purchase considering the financial implications.
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2. Overvalued Cost of Services
Condos are very attractive real estate investments because of the services they provide for owners. But are these services worth it? For example, if condo fees are calculated at $600 per month for security, maintenance of common areas, pool, gym and garbage collection, the amount being paid is considerably high because a condo owner will still have to pay for utilities and in some cases mortgage payments.
3. Bad Management of Condos
A condo is managed by a group of condo owners (the condo’s board of directors) who make all the decisions about how the condo fees collected from owners will be spent to maintain and improve the property. The downside of this idea is that in many cases bad management can lead to a low quality condo property. The results of bad management will directly affect condo owners with a lower standard of services and eventually more condo fees to be paid to fix the situation. Moreover, in the case of real estate investors, it will be hard to find tenants willing to pay the extra rent for questionable services. In most cases, the condo owner ends up on the losing side.
4. Not A Great Investment
Paying condo fees in the hopes of having a higher valued property after years to come would appeal to many real estate investors. Unfortunately, this is not the case. Condo values have a lower resale value than single-family homes or apartments. The reason is that single-family homes give owners complete control over the property they purchase unlike a condo, which gives (limited) control over the owned area only. Apartments also have more freedom in terms of redecorating and renovations that can push their price upwards, but condos meet a lot of restrictions in that aspect.
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5. Unused Facilities
Paying condo fees for facilities that don’t even appeal to you or to your tenants means it is definitely a bad investment. After all, the appeal of condos for buyers is the services they provide such as swimming pools and gyms. So, if an investor feels that the money to be paid for services which might not attract tenants willing to spend more on rent, then it is better to stay away.
A Case for Condo Ownership
Purchasing and enduring condo fees might sound like a step in the wrong direction considering the nature of the investment. However, it is important to note that condo fees can in some cases be worth the investment. Buying a condo is usually cheaper than purchasing a house that would give a justification of those fees if they included utilities. A condo that provides gas, water, electricity, and Internet as part of its fees could be a great purchase given that the condo fees are reasonably priced. It can give the buyer room to save more money or use it for the mortgage payments. Also, it eliminates the need for landlords to to take care of these issues themselves or to hire a professional property management company.
Conclusion
In a logical thinking process, it is extremely evident that condo fees are only worth the money in very rare cases. The analysis of the market and the other property options that are available to real estate investors make condos a bad investment if building a real estate portfolio is the aim. People invest in real estate to make money and to write their own path of success. Condos are too risky because owners don’t have the power they need in order to succeed. Owning a house means a real estate investor gains full control to ensure that his/her efforts will pay off at the end.
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