If you’re like most people, you want your financial future to be better than your present, or at least not worse. So, you set money aside and think of ways to make it grow. The options seem endless, but you’ve selected real estate as your investment arena, and you’re considering condos.
Condos have several advantages over single family houses or 2-4 unit buildings. And several disadvantages. In my conversations with people who’ve invested in condos, few were aware of all of them. So here they are.
Advantages of buying a condo as an investment property
Maintenance needs to be done on all properties. Condos, especially condos that are professionally managed, offer some relief to condo investors.
You don’t have to worry about roof, stairs, landscaping and such. The association takes care of them. For a price, it’s true, but you don’t have to do them.
Some of the problems inside the unit can also be taken care of by the complex maintenance crew. That varies from condo association to condo association. And they charge you for it, but you don’t have to drop everything else and run to your condo because the sink’s leaking.
Some condos are very expensive. However, houses of similar size in the same neighborhood cost more. So, you can buy an investment property in a better neighborhood. Also, in most areas, there’s no such thing as a 1-bedroom house, but there are 1-bedroom, or even no bedroom, condo units. And, usually, there are people willing to rent them.
Amenities vary from condo association to condo association. But it’s possible to invest in a condo located in a complex that has swimming pool, 24-hour security, and such things.
The disadvantages of buying a condo as an investment
You have to follow rules that are not yours. Each association has its own rules. And the rules can change. One of the rules that can change is whether tenants are permitted or not. If you own a condo and the association votes no more tenants, when your lease is up, you either move in or sell. Your association might decide to go with the ‘no more tenants’ rule at a time when selling is not a great option.
Or, worse, they decide to allow too many rentals. Too many tenants can make getting a mortgage difficult (FHA and others do not like condo associations where more than 10% of the units are rented.) which makes reselling your investment difficult, not to mention refinancing it.
Shared decision making
Yes, you could make sure you have something to say about decisions and get yourself elected on the board of directors; still, you are not the only decision maker.
You have to pay the same amount whether your unit is rented or vacant. In other words, you get to pay the same amount whether you use or not the services (for instance, the water bill portion of your assessment).
When you bought your condo unit, there were no special assessments and none were being considered. Six months later, the association decides it’s time for a new face and there’s not enough money in the reserves. They decide to go ahead with the face lift and pay it with special assessments. Your share is going to be twice your profits for the next 20 months. Can happen.
Yes, things can go wrong with a single family investment or an apartment building investment. But there you have more control. Because there you can have a home inspector inspect the whole structure. Because there there’s no board of director’s member whose boyfriend owns a construction company that could use a few thousand dollars.
So, overall, buying a condo as an investment is not the way to go. That is, if you can afford a single family house. A single family house is not the best way to go if you can afford a 2-unit building. A 2-unit building is not the best way to go if you can afford a 3-unit building and so on. Because of 2 reasons: when a condo is vacant (or a single family house) the whole income source is gone but the expenses are still there.
In any case, if you’re buying a condo as an investment property, you should know what you’re getting into.