An Investment Condominium
An Investment Condominium
A condominium, or condo, is a type of real estate investment that offers a unique set of benefits and considerations compared to other types of investment properties. Fortune Builders advises that the investment potential of any condo depends on the investor’s ability to perform market research and develop a proper exit strategy based on their financial goals. Some condos are ideal for long-term rentals, others for short-term vacation rentals, and others will only be a financial success if they are quickly updated and flipped.
Low Maintenance Management
One of the main benefits of investing in a condo is the relatively low level of maintenance and upkeep required compared to single-family homes or multi-unit apartment buildings. This is because the condo owner only owns the interior of the unit, while the common areas and exterior of the building are typically managed by a homeowners association (HOA). This can be especially appealing to investors who are looking for a more hands-off approach to managing their property.
Strong Rental Demand
Another benefit of investing in a condo is the potential for strong rental demand. Condos are often located in urban or suburban areas with high population densities, making them attractive to renters who want to be close to amenities such as restaurants, shopping, and public transportation. Additionally, many condos offer amenities such as fitness centers, swimming pools, and common areas that can be appealing to renters.
HOA Challenges
However, investing in a condo also comes with some unique considerations and challenges. One of the main challenges is navigating the rules and regulations of the HOA. Bankrate advises that it's important to carefully review the HOA's bylaws, budget, and rules before purchasing a condo. Some HOAs restrict the owner’s ability to rent short term leases (such as AirBnB) or to students. Additionally, HOA fees can add to the cost of owning a condo, so it's important to factor these costs into your budget. In more practical everyday ways a condo can make a property owner’s life downright miserable if they are either too power hungry or too lazy. A lazy HOA will not keep up the building and property will become run down and undesirable, plus the imposed expensive fees will hit when they attempt to make dramatic improvements. A power hungry HOA will nit pick every aspect of life including your veranda garden, parking habits, and grocery delivery. For brilliant guidance and a sincere but comedic perspective on how to best navigate the HOA, read “So You Bought a Condo: A guide to working for an HOA and making the HOA work for you” by Derek Mobraaten.
Limited Long-term Appreciation
Another consideration is the potential for limited appreciation compared to other types of investment properties. This is because condos are typically more affordable than single-family homes or multi-unit apartment buildings, which can limit the potential for appreciation in value. However, this can also make condos more accessible to first-time investors or investors with a lower budget. The amount of appreciation varies based on market demand. Bankrate suggests that based on their data, due to the limited number of houses available and booming 2023 market, condos have appreciated as much as 30% more in recent years than before the covid epidemic. Although 30% is a fantastic figure, The Balance suggests that appreciation of approximately 3% per year is a realistic long-term figure when estimating the amount of appreciation you will typically receive on a condo property.
Demographics and Location
When it comes to geographic areas or populations where condos can be particularly successful investments, there are a few key factors to consider. Firstly, urban areas with high population densities and limited space for new development can be good markets for condos. This is because condos can offer a more affordable and efficient use of space compared to single-family homes or multi-unit apartment buildings.
Secondly, areas with a high demand for vacation rentals can also be good markets for condos. This is because many condos are located in popular vacation destinations, such as beachfront or ski resort communities, and can offer a more affordable and convenient option for travelers compared to hotels or rental homes. The Balance suggests when considering a condo for vacation rentals, it is important to consider the implications of nearby construction, which would reduce demand for and outdate your rental, or the potential closing of nearby vacation attractions.
Finally, investors who are interested in catering to older adults or retirees may find success in markets with a high demand for senior living. This is because many condos offer amenities and features that are attractive to older adults, such as easy accessibility, security, and maintenance-free living. Ramsey Solutions also suggests that condo living offers a strong sense of community when run by a responsible HOA and when more than 50% of the community members are owners and not renters.
In conclusion, investing in a condo can offer a unique set of benefits and considerations compared to other types of investment properties. While condos can offer a relatively low level of maintenance and strong rental demand, they also come with challenges such as navigating HOA regulations and limited appreciation. Depending on the investor’s financial goals, the available properties, market demographic and demand, and the building management team, a condo might be a good investment!