When it comes to real estate, there are many ways in which you can invest. What works for another person may not work for you and your market. It is for this reason that you need to take time to consider new niches that come your way. One question has been raised to us, “Is buying a condo is really a wise investment?”
One of the areas that are often debated is whether not investing in condos is a good idea. Some swear by them while others oppose them. Similar to anything else in the market, you need to make an educated decision. Thus, you need to consider your risk aversion, personality, and investment goals.
Before you can start looking for investment properties, stop asking: is a condominium an excellent rental investment? Instead, you should start asking whether the specific condo you are interested in is a good investment. Good condo investment is one that provides the best Return on Investment (ROI).
When looking to invest in a condo, there are some factors that you need to look into. They include the following:
Condos Association Restrictions
When buying a condominium for investment, you need to think about the restrictions of using this rental property. Condominium associations are quite powerful and can significantly limit your condo investment strategy.
You will find a higher concentration of condos in vacation destinations or upscale areas, which makes them an excellent Airbnb property. Considering that your condominium will be part of a shared space with other owners, you are restricted when it comes to what you can do with the property. In this case, you can only use the condo in restricted ways.
With the increase in mortgage rates, investing in condos to rent out remains the most affordable option when compared to single-family real estate investments. Purchasing condos will continue to be cheap. This is an important aspect considering that most likely, the condo will be vacant when you first own the property. During this time, you will not be getting any rental income that you can use to pay your mortgages until you can manage to find a tenant. If, however, the mortgage rates are affordable, you can pay it off from your pocket in case it takes several months before you can find someone to rent your property.
While affordability is a reason that you may want to invest in a condo, it is not the only factor that you need to consider. You must think about the investment property as a whole and not just a single factor when making decisions. For instance, although it is cheaper than single-family investment properties, getting a mortgage loan to buy a condo is quite a challenge.
When you buy a condo, you also need to think about the ability to deduct expenses that are related to it. When it comes to regular rental property, any expenses paid towards repairs of the property are tax-deductible. This is not the case with the condos. In Condo investment, you are responsible for repairs done on your unit, which makes them tax-deductible. However, any fees that you pay to the condo association are not tax-deductible. The association will use this money to maintain and renovate common areas within the building.
Real estate appreciation
Even though purchasing a condo for a venture is less costly compared to buying a single-family investment property, condominiums have a slower appreciation rate than detached homes. The reason for this is that when you buy a condo, you only get the living space and not the land on which it stands. In the real estate business, the land plays a critical factor that influences the value of the investment property.
Condos are most common in urban areas, which in real estate are seen as luxury locations. Generally, condos are located in desirable areas that offer an attractive lifestyle. Purchasing a condominium for investment in such an area instead of a detached home can bring you a better ROI.
Buying a condo is a real estate market with a high demand for condos that could generate a high monthly rental income. For example, a beachfront condo is likely to fetch a lot of cash in a week during the summer as a vocational rental. Investing in a condo in such a market can bring you a monthly income that can cater to a year’s maintenance costs. Also, it can give you the free use of the property during the rest of the year.
How to Buy a Condo
Before you can invest your money in the condominium business, there are some steps that you need to take.
Determine if it is the best for you
You should take your time to assess whether or not investing in condos will help you meet your goals. The points that we have discussed above should be a starting point.
Work with an agent to research through the area listing
Real estate agents will cost you more money, but they are a wise investment that can save you time and even money. A right agent is well conversant with the market than you are and will be able to mitigate the risk.
Identify property with the best potential and make an offer
Narrow your search to one single property and make your offer. Choose a property that best fits your plan then make an offer.
Consider the Homeowner Association (HOA) rules and fees
Before you can make any decision to make an investment, consider the HOA rules and fees. The fees can add up and take up much of your intended budget.
Should you invest in a condo?
Overall, condominiums make good investment properties, but you need to be careful when investing. Be a smart investor and conduct a comparative market investigation to assess the productivity of purchasing a condominium for investment compared to a detached home in your real estate market. Most importantly, you must make sure that you review the rules and regulations of the condos association very carefully. You also need to weigh the significant advantages and disadvantages of acquiring a condo before you can make the final decision.