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Are Condos a Good Investment? Learn the Pros and Cons Before Buying

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Are Condos a Good Investment? | Condo as Primary Residence | Condo as Rental | Condo as Vacation Home | Renting Out a Condo | How Condos Appreciate | How to Buy

🏢 Is Buying a Condo a Good Investment? 🏢

Generally speaking, condos are a good investment. They’re typically easy to rent out, require minimal maintenance by the owner, and usually have higher rental income than apartments.

That said — they tend to appreciate more slowly than single family homes and you’ll have to pay association dues that can increase the cost of ownership.

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Condos are in high demand right now, largely because they’re a more affordable option in the current blazing hot housing market. They’re also ideal for people who want to own their home, but don’t want all of the maintenance that comes with a single-family house and yard.

And, contrary to popular belief, they have the potential to appreciate significantly over time – though still slightly less than single-family homes. Condo prices are hitting record highs, with 2022 median sale prices increasing 14.6% year over year.

Condos also make great rentals and vacation homes, allowing owners to cash in on their investments long after inhabiting the space full-time.

Is a condo the way to go for your next home purchase? Read on to find out whether condos are a good investment for residents, investors, or people looking for a vacation home.

A local real estate agent can brief you on the market for condos in your desired location. With a pulse on local neighborhoods, they’ll give you insight into which areas are likely to see price increases, which areas are sought-after for rentals, and what to expect with local HOAs.

Are Condos a Good Investment?

Pros 👍

Cons 👎

Often in desirable, central locations

No ownership of land

No exterior maintenance

Heavy use restrictions

Typically more affordable than other property types

Relatively high HOA fees

Easy to rent as an investment property

Lower appreciation rate compared to single-family homes

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Condos — or condominiums — can be a great investment, but there are a few things to keep in mind.

First, condos tend to appreciate at a slower rate than single-family homes. This is largely because unlike single-family homes, condo ownership does not include the ownership of any land – which many buyers prefer

Others prefer condos for their shared amenities, such as clubhouses, ample parking, pools, gyms, and other recreational facilities. However, these amenities often come with monthly association dues that range anywhere from $100 to $700.

Condo owners also may face assessments to cover improvements to common areas, which can impact the property’s rate of return. Likewise, condos are also regulated by use restrictions set forth and enforced by a condo association or homeowners association.

🏘️ What is a Homeowners Association (HOA)?

A homeowners association, also known as an HOA, is a group of condo owners or homeowners who manage and maintain the property. This can include everything from making sure the common areas are clean to enforcing rules about noise levels and parking.

Residents typically have to pay monthly or annual dues, which go towards things like maintenance, repairs, and insurance for common areas. In some cases, the HOA may also cover utilities like water and trash.

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Still, condos have advantages when it comes to cash flow. Because owners are only responsible for their individual unit, expenses like repairs and maintenance are typically lower than for a single-family home.

Additionally, because condos are often located in high-demand areas, they can be easier to rent out. As a result, investing in a condo can provide a steady stream of income. Just be sure to do your homework before making any commitments.

» Read More: Condo vs. Townhouse: What’s the Difference and Which One Should You Buy?

Investing in a Condo as a Rental Property

If you’re thinking about investing in a condo as a rental property, check the rules of the condo association before making an offer. Some associations impose restrictions on how many units can be rented at any given time, or they may require that tenants live in the unit for a minimum period of time.

For example, an HOA may impose a minimum stay of 30 days to avoid short-term vacation rentals, or 12 months to reduce the amount of tenant turnover.

Also, familiarize yourself with the local market. Condos in high-demand areas will likely be easier to rent out, but you’ll also face more competition from other investors. Doing your research ahead of time will help you make informed decisions about whether investing in a condo is right for you.

Investing in a Condo as a Full-Time Residence

When buying a condo as your full-time residence, consider your preferred location and the amenities that are important to you, like pools, gyms, and playgrounds.

Make sure that applicable condo restrictions are consistent with your lifestyle and intended use of the property. For example, if you have dogs, make sure their breeds are allowed and that residents can have multiple animals in a single unit.

Finally, be prepared for the possibility of assessments. These are special fees that all condo owners must pay when major repairs or renovations need to be made to common areas.

Contact the condo association to ask about the average dollar amount of yearly assessments per owner. Ask if they’re expecting any significant renovations in the coming years. This way, you can factor assessments into your budget when considering whether or not to buy a condo.

Investing in a Condo as a Vacation Home

Investing in a condo may be a more accessible and lower maintenance way to achieve dreams of owning a vacation home.

Compared to a single-family house, a condo is usually more affordable and easier to maintain. Plus, most condos are located in desirable areas that are close to popular tourist attractions.

Keep in mind that while buying a condo as a vacation home may serve as an investment, considerations are different than for an investment property you intend to rent out. Before purchasing, consider the amenities that are important to you for a vacation home. These likely differ from what you usually look for in a primary residence or investment property.

Can You Rent Out a Condo?

Condos are often used as long- or short-term rentals, but eligibility ultimately depends on your HOA’s rules (often called covenants).

Condo association covenants vary widely, but can include restrictions on rentals such as:

  • Capping the number of units in a development that can be rented. Once this limit is met, you may be put on a waitlist to rent out your condo.

  • Requiring owners to live in the unit for a set period of time before renting it out.

  • Enforcing minimum lease periods – for example, tenants may be required to sign a lease of at least six months

  • Requiring that all potential tenants be subject to the association’s screenings and background checks

  • Prohibiting short-term rentals, such as Airbnbs or VRBOs

Before purchasing a condo, make sure you understand all of the association’s covenants. If they impose heavy restrictions on rentals, it may be difficult to utilize as an investment property.

» Read More: Should I Sell or Rent My House? Read This Before You Commit

Do Condos Appreciate Like Other Properties?

Condos appreciate based on factors like location and the state of the real estate market – much like other properties – but at a slightly lower rate than single-family homes. As of February 2022, the median sale price of condos in the U.S. was up 14.6% year over year, while single-family homes were up just slightly more, at 15.9%.

Next Steps: How to Buy a Condo

The process to buy a condo is similar to buying a single-family home. You’ll need to get preapproved for a mortgage (if you’re financing), find a real estate agent, and make a competitive offer on the condo that meets your criteria and budget.

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FAQs About Buying a Condo

Can You Rent Out a Condo?

Typically, you can rent out a condo, but eligibility ultimately depends on your condo association’s rules (often called covenants). Before purchasing a condo, make sure you understand all of the association’s covenants. If they impose heavy restrictions on rentals, it may be difficult to utilize as an investment property. Learn more about investing in a condo as a rental.

Do Condos Appreciate Over Time?

Condos appreciate over time much like other properties – based on factors like location and the state of the real estate market – but at a slightly lower rate than single-family homes. As of February 2022, the median sale price of condos in the U.S. was up 14.6% year over year, while single-family homes were up just slightly more, at 15.9%. Learn more about whether or not buying a condo is a good investment.

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