When it comes to real estate investing, there is a wide range of options to choose from including single family homes, townhouses, co-ops, condominiums, duplexes, triplexes, and apartments. Investing in condos (short for condominiums), however, is becoming increasingly popular with real estate investors all over the world.
So, What Is a Condo?
A condo is a private residential unit within a larger community or building. It could be a single unit in a high-rise or a multi-story townhouse.
Though condos are at times confused with apartments, they are not the same thing. The main difference between these two types of investment properties is ownership. With apartments, one person owns the entire building. On the other hand, each condo in a building or community is owned by an individual.
Are Condos Good Investments?
So are condos good investments? Can you make money investing in condos? If you choose the right location and invest at the right time, buying a condo and renting it out can be a very profitable venture. However, just like any other real estate investment strategy, condo investing comes with its own share of pros and cons.
So before buying a condo for investment, you need to understand the advantages and downsides.
Pros of Investing in Condos
- Amenities – One of the main advantages of investing in condos for rent is access to luxury amenities. This could be anything from fitness rooms, pools, gyms, private cabanas and fire pits, to rooftop terraces, steam rooms or saunas, spa services, and play areas for children. Since such amenities are very appealing to many tenants, your condominium investment is likely to be in high demand. This could minimize your vacancy rate and improve your cash flow.
- Affordability – As a real estate investor, price is one of the most important considerations when buying an investment property. Usually, it is much cheaper to buy a condo than a multifamily home or single family home with similar features. A lower buying price will help you earn a good return on investment.
- Less maintenance – Investing in condos for rental income means that you don’t have to worry about property maintenance. For example, neither you nor your tenants have to worry about mowing the lawn or shoveling the snow. As a condo investor, all you need to be concerned about is the maintenance of systems and units contained in your rental property. The condo association will handle the maintenance of the grounds and the building.
- Security – Most condo complexes have elaborate security arrangements. Besides having CCTV cameras, such buildings also have security personnel monitoring activities day and night. Often, condos are equipped with an intercom that tenants can use to buzz-in visitors and guests. When tenants feel safe, they might be willing to pay more and even stay longer. And you’ll feel better knowing your rental property is less likely to get broken into or vandalized.
Related: Are Condos a Good Investment for 2020?
Cons of Investing in Condos
- High condo fees – Condos usually have a homeowners association that charges a monthly fee that goes towards the maintenance of the facility. The condo fees will vary based on the size, quality, and location of the community. In major cities such as New York, Chicago, and Los Angeles, you might have to pay as much as $1,500 in condo association fees. In addition to the regular fees, condo investors might be slapped with a costly one-time ‘special assessment’ for projects like improving the parking area. Such expenses will end up reducing your rate of return on a rental property.
- Property mismanagement – As a condo investor, you depend on the condo association to properly maintain the community or building. If the association does a shoddy job, it will have a negative effect on the whole community. This could drive away potential tenants and slow down your property appreciation.
- Strict condo rules – When investing in condos, you must agree to obey the rules or bylaws laid down by your condo association. Such rules determine what property owners can do and cannot do. For instance, you might not be able to rent out your unit without the association’s permission. If renting is allowed, there could be limits on the length of the lease or number of occupants. This could mean, for example, that you won’t be able to use your condo as an Airbnb investment. Such rules can be very frustrating for you and your tenants.
- Difficulty selling – Selling a condo can be difficult due to several reasons. First, most people with families prefer multifamily homes or single family homes. This limits your pool of buyers. In addition, the high condo association fees are likely to put off people that want to buy. The inability to find buyers quickly will mean more days on market for your investment property for sale.
Want to Make the Most of Your Condo Investment? Follow These 3 Steps:
There are definitely some downsides to investing in a condo. However, many real estate investors find that these properties still make for great investments despite.
If you do decide to invest in condos, you want to make sure you make the most of it and are able to get great cash flow and the best return on investment. Here are 3 things you must do before investing in condos:
- Choose the right location – The location of your condo will influence your occupancy rate and expected return on investment. Use Mashvisor’s real estate heatmap tool to find the best neighborhoods to buy condos for sale. You can first filter your search for condos and then use metrics such as listing price, rental income, Airbnb occupancy rate, and cash on cash return to conduct neighborhood analysis.
- Conduct a rental property analysis – Before you invest in condominiums, be sure to conduct a rental property analysis. Mashvisor’s investment property calculator will show you the potential profitability of a condo based on metrics such as cash on cash return, cap rate, occupancy rate, and cash flow.
Mashvisor’s Investment Property Calculator
- Peruse condo association documents – Before investing in condos, take time to go through the condo rules and regulations. Do the math to find out if the expected rent will cover the association fees using Mashvisor’s calculator. You could also talk to neighbors to get inside information about the community.
Read all of the steps you need to take to successfully invest in a condo: Buying a Condo to Rent in 7 Easy Steps
Conclusion
Before purchasing a condo as an investment property, there are many things to consider. From price, amenities, and condo fees, to location, profitability potential, and condo rules, there is so much to take into account. Do your due diligence and decide if investing in condos is the right real estate investment strategy for you. It would be advisable to enlist the help of an experienced local real estate agent. They will guide you through the process and help you avoid making costly mistakes along the way.
Related: Condominium Investing for Beginners: 6 Tips