As the rental market heats up, many property owners have found real estate investing can be a lucrative supplementary income. You’ll often hear arguments for electing to purchase single-family homes and multiunit properties, but where do condominium investments fall within this equation?
The Disadvantages
Condos aren’t always the best real estate investment, for a variety of reasons.
Loss Of Control
If you’re the landlord of a single family home or multifamily home, you get to make the rules and decisions. Condo owners, in contrast, must abide by any bylaws and rules set by the condominium. In fact, many condo associations have limited the amount of units in any given building that can be employed as rentals, and you may even have to put your name on a list to wait for the opportunity to rent it out—in as much as one or two years’ time. Now consider that time frame: will you be able to sit on your vacant investment without any income for an extended period of time?
Condo Fees
Condominiums require a special set of fees to cover the costs of common spaces in the building. These can cost hundreds to even thousands of dollars every month, depending on location, type of building, and offered amenities. These fees generally go towards paying insurance, trash removal expenditures, pools, parking, and even doormen. It can feel almost impossible to put down the necessary minimum amount for purchase and still garner positive cash flow, and usually means that your ROI is significantly less.
Slow Appreciation Rates
If you’re looking for an investment that will garner huge appreciation, condominiums definitely aren’t the way to go. While generally cheaper at the onset of purchase, they don’t appreciate nearly as much as their single-family home counterparts do.
The Benefits
Contrary to what the naysayers may believe, there are some real benefits to be gleaned from condominium investments, especially those intended for use as rentals.
The Sense of Community
Modern tenants are looking for more in their rentals than just four walls and a roof. As millennials saturate the rental market, the parameters for an ideal living space have changed. Young professionals often cite a desire for a sense of community in their living situation, and communal spaces have become an amenity that many renters pursue. Condos provide this community experience in spades. From pools to barbecue areas, communal kitchen facilities and lounges indoors, communal spaces can be the deciding factor for many tenants that are seeking top-of-the-line accommodations. Some condominiums also plan weekly or monthly social events, and that can be a huge draw for renters looking for community.
A Hands-Off Investment
If you’re looking for a hands-off real estate investment, condos can be an excellent route. Repairs and maintenance are generally included in the condo fees, meaning if something breaks, you won’t be on call to come fix it. This includes the grounds of the area, which means less spent in landscaping services and more freedom to focus on other investment pursuits. You’ll also have the option, when you retire, of taking advantage of reverse mortgages for condos.
If You Decide To Purchase A Condo…
If after examining the benefits and disadvantages, you come to the conclusion that a condominium investment is in your best interest, there are a few things to keep in mind. You’ll want to establish a rental rate that will handle the total of your monthly payment, including condo costs, insurance issues, and property tax. Offer upgraded energy efficient appliances and highlight the numerous amenities to justify charging higher prices. In order to ensure you place tenants that will maintain the property and be able to afford the rent, always screen thoroughly with tenant verification services, and interview multiple candidates for the unit to ensure the best chance of a long-term, high quality renter.
As always, do your homework before investing in any one property. If you’re new to the real estate investment game, use the help of a professional real estate agent that can help you locate the best property for your money. Working with someone who has better knowledge of current markets and available listings is often more than worth their nominal fee.
