When it comes to real estate investing there is a variety of different ways to invest. What works for someone else may not work for you and your market. That is why you should never completely eliminate or carelessly dive into every new niche that comes your way. One of the areas that is often debated, is whether or not to invest in condos. For every investor that swears by them, someone else is strictly not a supporter. Like everything else in the business world, you need to make your own experienced decisions. Much of this will be based on your individual personality, risk opposition, and goals. If you are considering buying condo for investment, here are a few pros and cons to help you make your decision more clear-cut.
Related: Invest in Condos or Single-Family Homes?
- No maintenance: When buying condo for investment, you need to think about your target market. This market is typically made up of first-time buyers who aren’t ready for a home or older buyers who are looking to downsize. Either way, one of the main selling points for a condo is the convenience that comes with low maintenance. The owner does not have to cut the grass or shovel the snow. They can still take care of minor landscaping, like bushes and plants, but don’t need to worry about much else. This may not seem like a huge thing; but in areas where extreme weather is a factor, this alone can create a huge demand.
- Amenities: All condos feature amenities in one form or another. They can range from a pool to security watch. The better the amenities, the easier it is to justify paying the monthly common charges. There are many owners who like swimming, but don’t want to own a pool or want to work out but don’t have a gym. Condos offer amenities that regular homes don’t offer.
- Affordable price: Generally speaking, condos are offered at a lower price point than your average single-family property. There are some exceptions depending on the market, but for the most part, they are lower in price. This makes it easier when it is time to sell.
Related: Invest in Condos or Single-Family Homes?
- Security: Many condos offer gated or locked entries, doormen, or even security professionals for residents. If you live alone, or security is a concern for you, this can be a major benefit. In addition, you’re living close with many other people; in an emergency, you’ll have plenty of people to turn to for help.
- Rental policies: Before you consider buying condo for investment, you need to be familiar with the rental policies. Many associations have strict rules against renting. They don’t want to decrease the number of owner occupants in the complex. In addition to rental policies, there may be rules regarding the color of exterior paint, whether or not a deck is allowed, and where you can park. Every complex and association can enforce their own set of rules. Before you make any offer, you need to read the laws for the complex.
- Comparable sales: One of the problems with getting the biggest bang for your buck when you resell a condo is that you are being judged against other units in the complex. Listing a property is all about looking at the comparable sales and listings in your area. When selling a condo, every other sale in the complex is a comparable. If the bedroom and bath count of your condo is the same as the others around it, it will be difficult to raise the price much higher. Even if you make improvements, it may not correspond to a higher sales price on your end.
- Limited market: A condo holds certain appeal but only for the right buyer. This means you need to do everything right to market to these groups. It also means that you may not be able to produce bidding for your property. Investors feel the same way the buyer does about condos. The more limited your market, the more difficult it can be to sell.
Related: How to Buy a Rental Property in a Seller’s Market
- Fees: As great as having amenities are, not every owner is willing to pay a price for them. Association fees can range from under $100 to as much as $300 a month depending on the complex. This is addition to the regular principal, interest, and tax payments on the mortgage. This can push certain buyers over their number and make it more difficult to sell the property.
Mistakes condo investors make:
- Condo investors trust the floor plan
Usually condos are not as large as they are advertised. Most investors when they buy condo for investment are disappointed when they discover the actual size of the condo. The problem is that condo sales staff will often include balcony or terrace measurements as part of the total square footage. Investors need to avoid this mistake by asking for a breakdown of room size and plan details. Then if there is a substantial difference between what you are sold and what you get, you can either negotiate a price reduction or get out of the deal.
- Condo investors think they have warranty, but don’t!
Most buyers assume that all new-build lofts, condos and homes are covered by a warranty, but that’s not the case. To avoid this mistake, those who want to buy condos for investment should get their new home warranty in writing. They should also go online to determine if their builder is registered with a provincial regulator as a new home builder.
- Condo investors buy at the wrong time
If you’re buying a new condo or townhouse as an investment, the key is to get in as early as possible. In order to get the financing to start a new project, builders will often raise initial funding through pre-sales. Keep in mind that buying condo for investment at the right time of year can save you tens of thousands. For example, summer time is the best time to shop for new development since people are on vacation and don’t have time to look for houses.
- Condo investors are attacked by hidden closing costs!
When you sign the purchase agreement for your new place, many of the closing costs are estimates, and you need to know that these costs often escalate as you approach your possession date. Not only do they escalate, but they can get quite crazy. For example, you may find large charges that suddenly materialize for hooking up gas and electricity meters, plus mortgage discharge fees, development fees and deposit verification fees. Pay close attention to these adjustments and avoid falling into this trap.
In the end every real estate investor needs to carefully study all the options available in order to make a proper decision. Even if it’s investing in condos or single-family homes, both need careful studying to successfully work. Do not rush into anything and be sure to check out Mashvisor for the best tips and strategies in real estate investing!