Is Buying a Condo a Good Investment Decision in 2018?

Investment properties come in different shapes and sizes, and all of them give investors the potential to make money in real estate. If you’ve been shopping around for an investment property, chances are you’ve come across condos and wondered if they make good investments. These are hybrids between a house and an apartment that a real estate investor can buy and own outright. The question here is: Is buying a condo a good investment?

Truth is, this is a debatable topic in the real estate industry. While some property investors swear by them, others would only invest in detached homes (like a single-family home for example). Thus, to answer the question is buying a condo a good investment for you, you have to understand the pros and cons of these investment properties.

Why Is Buying a Condo a Good Investment?

Let’s first explain a number of benefits you’ll enjoy when investing in a condo. Property investors consider buying condos for sale because:

They are More Affordable

In general, buying a condo is way cheaper than buying any other types of real estate, such as a detached single-family home. In some real estate markets across the United States, the average single-family rental property is larger in size and, consequently, is more expensive than a smaller-sized condo (either in terms of square feet or the number of bedrooms/bathrooms). Yes, there are other things that property investors should consider like the cost of living in the area as well as HOA fees when comparing costs. Nonetheless, a real estate investor will typically spend less when buying a condo for investment purposes.

They Can Make Rental Income

Another reason explaining why is buying a condo a good investment is related to making money in real estate investing. You can rent out your condo (whether traditionally or on Airbnb for the short-term) making it an added source of rental income. This is especially profitable in a real estate market with a high rental demand for condos. For example, if you own a beachfront condo, then why not rent it out as a short-term vacation rental during the summer? This may actually fetch thousands of dollars in rental income per week!

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Maintenance is Not Your Responsibility

One of the prime benefits of investing in a condo is that, as a real estate investor, you are not directly responsible for maintaining the building nor the common areas and grounds. This means you can forget about mowing the yard, fixing the roof, shoveling the snow, etc. Instead, your monthly condo fees will cover all maintenance costs and other people will do the work for you! For beginner property investors, or those busy with managing their other investment properties, or simply anyone who doesn’t want to deal with all that work, the answer to “Is buying a condo a good investment decision?” is a strong yes.

What to Keep in Mind When Investing in a Condo

So, what pushes some real estate investors away from condos as rental properties to make money in real estate investing? Well, these investors will tell you that the answer to “Is buying a condo a good investment?” is no due to:

Homeowner Association’s Fees

Most condos offer their residents amenities that other types of real estate properties don’t such as a fitness center, swimming pool, security system, etc. However, enjoying these perks and becoming a member of the community comes with a price. HOA fees generally range from under $100 to as much as $300 per month depending on the complex, location, and quality of the community where you’re buying and investing. As great as having these amenities is, not any real estate investor is willing to add this fee to the regular principal, interest, and tax payments.

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Homeowner Association’s Rules

Some property investors would say no to the question is buying a condo a good investment because HOAs have very strict rules that you, as an owner or your tenants in the community, must adhere to. Some have regulations regarding the exterior, whether pets are allowed, where you can park your car and such. While those can be tolerated, other homeowner associations also have rules controlling your ability to actually rent out the condo you’ve purchased. Many don’t even allow it and others limit the number of condos that can be rented as rental properties and set how many days they can be rented out on Airbnb. As a real estate investor, you need to review the HOA’s rules so you can answer is buying a condo a good investment or not.

Financing the Investment

Financing investment properties is a major concern for many property investors buying for the first time. The most common property financing method is to obtain a mortgage loan. Now, if you’re toying around with the thought of buying a condo as a rental property, you should know that obtaining a mortgage for such properties is harder than for a detached home. First, a real estate investor still needs to put a 20-25% down payment. However, many lenders will also require that he/she lives in the condo for at least one year before turning it into a rental property.

Second, lenders will not only evaluate you, the homeowner association needs to qualify as well! For example, lenders won’t finance a condo that is in a building currently undergoing litigation. As you can see, there are tighter requirements for property investors to obtain a loan to finance a condo, which explains why some would say no to the question is buying a condo a good investment.

Tips for Buying and Investing in a Condo

Search for Desirable Locations

Property investors must remember the important role that a good location plays in a successful real estate investing career. Among the things determined by the location is the best type of rental property. So, is buying a condo a good investment? Yes, only if you’re investing in the right location. Condos make good rental properties in urban areas with a luxurious lifestyle. Make sure to perform a real estate market analysis to find the rental demand for condos in your location of choice and see if it’ll truly give you a good return on investment.

Consider Your Rental Strategy

What we mean here is whether you should rent out your condo traditionally or list it on Airbnb as a short-term rental. The optimal rental strategy can be determined by the location of your investment property. Nonetheless, a condo is commonly rented out as a short-term vacation rental. Before you do that though, make sure it’s legal in your city and allowed by your HOA.

Positive Cash Flow

If you’re renting out your condo, then your main goal must be to generate rental income higher than the expenses of owning and managing the rental. In real estate investing, this will lead to positive cash flow – something that every investment property should generate to consider it profitable. This means before buying a condo, you should conduct a rental property analysis to determine its potential monthly rental income and expenses in order to calculate cash flow. So, is buying a condo a good investment decision? If it promises positive cash flow, then yes!

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