Weighing the options of purchasing an investment property amid today’s fast-moving market can be a difficult decision, especially when considering the many types of homes available in today’s market. Condos have been proven to be a great option for investors looking for investment opportunities with minimal upkeep needs, especially in comparison to single-family homes which tend to require frequent upgrades and maintenance. Investors should be aware of the options. Single-family homes could have the best pay-off in many markets, as opposed to condos, however.
[Read: How to Become a Landlord]
The Pros of a Condo Investment
Among the pros, condos in general tend to be cheaper than single-family homes, meaning there is a smaller price tag attached to the initial purchase price.
In addition to being generally cheaper, owners tend to have fewer upkeep needs to consider, as the exteriors of most condos are often handled by the homeowners association that oversees the properties. These associations require an HOA fee to manage ongoing costs, but make it easier for investors looking for a hands-off approach. Investors should deeply consider their prospective investment property’s HOA fee, as some communities may require more in comparison to others.
Shared amenities like pools, gyms, recreation rooms, park areas, pet parks and more are attractive to many urban and suburban buyers looking to simplify their lifestyles. These can all be great additions when investors look to cash in on their investment.
The Cons of a Condo Investment
While condos have their benefits, as with any investment, they also have their downsides.
HOA fees can vary greatly and are up to the discretion of your association. If the association would like to make changes to the exterior of the building or the surrounding properties, you may end up paying for these upgrades during your investment.
If you’re looking to rent out the condo while making changes, be sure to know what terms you may be under before purchasing, as some condo communities don’t allow for short-term rentals or longer-term renters.
Additionally, the HOA can sometimes have a say in what upgrades you may plan to make to the property, so be sure you carefully read the HOA agreement before purchasing.
[Read: What is the Maximum Price I Can Afford for a House?]
What’s in Store for the Condo Market?
Single-family homes in general tend to appreciate at a higher rate than condos, though recent data from the National Association of Realtors suggests that gap was wider in 2021, with single-family homes outpacing sales price growth over condos, likely a result of many seeking larger spaces amid flexible working conditions.
While prices for single-family homes have increased 13.5% since October 2020, condos have seen an average price rise of 8.7% in the U.S., according to NAR.
This trend also holds true for previous years including 2020 where condos saw a 6.3% increase in sales price nationally year-over-year, as opposed to single-family homes with an 8.5% increase in price, per NAR data.
How Much Can You Afford?
As with any investment, create an in-depth budget before you begin your home or condo search, weighing your monthly expenses on top of other investments you may have.
If you’re planning to use a mortgage to purchase your investment property you should sit down with a mortgage expert before beginning your search to discuss the fees and additional expenses required within your loan term.
Purchasing a condo can have different costs associated depending on where you’re buying. For instance, for those looking to make an investment in New York City, many condos and apartments are represented by co-ops. In other words, they’re owned by a corporation. If you’re looking to purchase a co-op property you may have additional hoops to jump through, as you’ll technically be buying shares of the corporation, rather than purchasing the actual property. In many cases, a prospective seller will pay a flip tax, among other moving fees, in order to list the property again after investing in changes.
Any changes to the building approved by the board will be passed down to anyone involved in the co-op. So be sure to meet with an expert to weigh the options and possible expenses or fees associated with a co-op or condo purchase in your particular market.
[Read: Should I Buy a House Now?]
Are Condos Worth the Investment?
With interest rates remaining reasonably low, purchasing an investment property, in particular a condo, could make for a great future investment, but you should be sure to weigh your options and contact experts local to where you’re looking to purchase, whether that’s a real estate agent, real estate attorney, financial advisor or other industry professional.
Single-family homes have shown promising growth amid the pandemic, but condos could make for a great flip project if you’re looking to turn around a property quickly. However, the fast-rising growth of single-family home prices could lead to a better return than most condos, depending on the market.
As with today’s fast-rising and often inflated real estate prices, buyers should consult with a real estate agent who knows their market and can advise on the investment in line with their clients’ needs. An agent can additionally get in touch with a mortgage expert to better gauge what their true price range may be.
More from U.S. News
How Long Does It Take to Buy a House?
Is a Condo a Good Investment? originally appeared on usnews.com
