Though condominiums may seem quite similar to traditional houses, there are actually plenty of differences to be aware of. So, what is a condo?
Table of Contents
- What Is a Condo?
- Types of Condos
- 3 Reasons to Invest in a Condo
- Risks of Investing in a Condo
- 3 Factors to Consider Before Buying a Condo
- Recap
It is essential investors know all of the key tips when it comes to condo properties as they can come with different management strategies than traditional rentals.
In this article, we will look at all of the important information an investor should be aware of before purchasing a condominium as an investment property. Then, we will explore some helpful tools that can help guide difficult investment decisions.
What Is a Condo?
A condominium, also commonly referred to as a condo, is a type of residence people own. It differs from a traditional house as it typically has shared walls and common spaces with other residents. Condos are similar to houses as they are a type of property people typically own. In simple terms, condos are essentially an apartment that individuals own rather than rent.
In more than one way, condos are similar to traditional houses. Also, they are similar to townhouses in the sense that they are usually in shared complexes and rows.
Condominiums are popular properties among investors. Whether it be for flipping them or renting them out, they can make excellent income properties for investors. Before purchasing a condo, make sure to do extensive research to ensure it is the best investment properties for you.
What Is the Difference Between a Condo and an Apartment?
Though there are many similarities between the two, the main difference between a condominium and an apartment is ownership. When looking at a condo vs apartment, in most other ways, they are the same. The two usually come with shared walls between each unit, common spaces like lobbies or recreation buildings, parking in lots rather than private spaces, and HOA fees.
Additionally, both condominium owners and apartment owners are not responsible for certain things a typical homeowner would need to do. Even though you own the condo, you are not responsible for landscaping or upkeep of the property in any way. It would fall under the care of the property manager or HOA.
The key difference between a condo and an apartment is the ownership of the property.
What Is the Difference Between a Condo and a Townhouse?
Aside from apartments, condos also share lots of similarities with townhouses. They are similar in the ways they both provide ownership to the individuals who purchase such properties. They also both fall under the HOA. It means certain tasks, such as landscaping and upkeep of the land, do not fall under your responsibility.
The main difference between a condo and a townhouse is there is usually no one residing below or above your unit. Basically, a townhouse is the hybrid of a condominium and a family home. So, they share walls side to side between units, but not above and below. It allows townhomes to provide more space for families, while condos are meant for individuals or couples.
Types of Condos
If you are an investor thinking about purchasing a condominium for an investment property, you should know about all of the different types of condos. There are basically two styles of condos.
The first is freehold condos. Here, the unit is also owned by the tenant. It means they occupy the unit they also purchased. The second is leasehold condos. Such condo types are rented out by the owner of the unit.
Besides the two ownership styles of condos, there are six other types of condos commonly seen in the residential market. They vary in size and ownership of the property.
1. Condo Home
You may be wondering what is a condo home? Such a style of condominium property provides the buyer with complete ownership of the property itself. However, it does not include the land the property sits on. Individuals purchase condo homes for ownership without all of the responsibility of a traditional family-style home.
2. Condo Coop
If you’re asking yourself what is a coop condo? It essentially involves purchasing a share of a condo rather than the entire property itself. When you do so, you do not take full ownership of the building but rather a stake in the property’s deed.
3. Non-Warrantable Condo
What is a non-warrantable condo? Basically, this type of condo is any style of condominium that does not meet standard lending requirements. It makes them much harder to receive financing for. Essentially, they can be risky to purchase and, therefore, invest in.
4. Site Condo
A site condo is one of the most desired types of condominiums. If you’re asking yourself what is a site condo, it is a condominium property that is not attached to other units. There are no shared walls or garage spaces. They are usually stand-alone and are quite similar to traditional family-style homes. The only difference between a site condo and a traditional family home is the HOA fees. All condominiums will likely require such fees, while traditional houses do not.
5. Condo Apartment
A condo apartment is usually a condo that a landlord rents out. They are generally harder to apply for. It is because they are more complicated than regular apartments, as the application process is more extensive.
6. Condominium Complexes
Condominium complexes are your more standard type of condo. They consist of many condos in the same location. It means there are usually multiple units that share walls both side to side and above and below. Parking spaces and yards are also usually shared.
3 Reasons to Invest in a Condo
As an investor, you may be considering investing in many different types of properties. Below are some reasons why you should look into investing in a condo property:
1. Less Expensive Than Houses
One of the biggest reasons investors choose to purchase condos rather than traditional-style houses is the fact that they are usually much less expensive. It means, as an investor, there is much less money to initially put down. You can lease out the unit to tenants or renovate it and resell it to others. There is money to be saved when purchasing a condo compared to a traditional-style family home.
2. Amenities
If you are looking for a condo unit to rent out to tenants or even as a vacation rental property, the amenities will help attract renters. Typically, condos have shared spaces like pools, gyms, and other recreational facilities. It will make your property more desirable, making it easier for you to find renters for the unit.
3. Appreciates in Value
If you are an investor looking to rent out your condominium as an Airbnb or traditional rental, you will generate a positive cash flow. Additionally, condos will always continue to appreciate in value over time. It will also increase your equity and make you more money in real estate.
Risks of Investing in a Condo
While there are many benefits to investing in a condo, as an investor, you should also be aware of some of the risks involved. Below are some of the biggest drawbacks of investing in a condominium property:
1. Association Fees
If you are the owner of a condo, there are certain association fees you will need to pay each month. The fees can be a few hundred dollars ranging all the way up to a few thousand. It will impact your return on investment if you are not prepared. It is always smart to research what the fees will look like in the location of your property.
2. Restrictions on Rentals
Even though, in most cases, it is acceptable to rent out your condo, some locations may impose certain restrictions. Some restrictions may also be in place on how many people (or pets) are allowed to live in the unit. It can negatively influence how many renters you can find. Such restrictions can make your income property much less valuable.
3. Financing Difficulties
It can be difficult to obtain approval if you are looking to purchase your investment properties with financing. Certain types of condos may be subject to restrictions when it comes to the financing options, making purchasing the unit hard. It is always a good idea to be up to date with the different financing requirements in the location of your investment property.
3 Factors to Consider Before Buying a Condo
As we discussed above, there are several pros and cons of purchasing a condo as an investment property. Below are some of the biggest tips any investor should look into before committing to purchasing a condominium.
1. Loan Matters
Even though it is usually cheaper to purchase a condo than a traditional family-style house, it can sometimes be even harder to obtain a loan for a condominium. Lenders are extremely careful when it comes to condo loans. It is due to the fact of how the percentage of ownership is distributed between owner, lender, property manager, and sometimes even tenants. Given the number of parties involved, there is more risk for lenders to losing money.
Purchasing a condo without financing or a loan can be the best way to buy a condo as an investor. It means you take full ownership of the property and can rent it out as you desire. You can also resell it when you are ready without obtaining the approval of others.
Obtaining approval for a loan to purchase a condominium can be difficult due to the number of restrictions lenders impose on such types of loans.
2. Costs and Fees
Unlike traditional homes, condos usually come with additional fees, such as HOA fees. You will need to make monthly payments to the HOA, in addition to certain homeowners’ insurance, known as condo insurance. It can significantly impact your rate of return if you are not prepared for such fees.
But how much is condo insurance?
It’s an average of $455 in the US market, but the cost can vary widely depending on the market, the coverage, and the company.
3. Overall State of the Condo Complex
Even if you are just purchasing a single unit in a complex, you must do your research on how the complex is as a whole. It is always a good idea to do extensive research on any location before purchasing an investment property. Doing so is essential, especially If there are potential issues that will make finding a tenant or selling the property more difficult once you decide to.
Recap
After reading everything above about the condo meaning, you should be able to answer what is a condo. It is a type of property that provides ownership to the person who purchases the property rather than renting it like an apartment. Condos serve as an excellent investment opportunity for investors without having to purchase a traditional home.
As condos are so popular among investors, sometimes it can be difficult to find a profitable property. Mashvisor provides various tools and services to help find your perfect investment property. We only use data from trustworthy and reliable sites such as the MLS database to provide our users with accurate information. The data helps to produce key real estate metrics that will find you a successful condo investment property.
Mashvisor offers tools such as the Airbnb Calculator and the Real Estate Heatmap that lets investors filter through available listings. To find condos, you adjust the filter settings along with additional requirements, such as budget and the number of bedrooms and bathrooms. Then, our tools will find both the most successful condominium locations, as well as profitable condo units.
Before investing in a condo, it is important to consider all the pros and cons that can impact your property. Several factors, such as HOA fees, loan requirements, and location issues, can adversely affect your investment. It is essential to do the proper research on any potential investment property and location to ensure you will generate a high return on investment.
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