Purchasing a condo has its appeal. They typically come at a lower cost than single-family homes and are often located in desirable locations like city centers. They can also be a smart option for military personnel, who may move often and can use a VA loan to finance a condo.
Condo owners also pay monthly fees to their condo association for exterior maintenance and additional amenities. These can include access to pools or dog parks depending on the complex. Not having to worry about landscaping and snow removal may be well worth the extra cost for some buyers.
As we’ve mentioned, the benefits and drawbacks of investing in a condo depend on why you’re buying one. Let’s explore a few reasons in a bit more detail.
Buying A Condo Vs. Renting A Primary Residence
Renting can be an affordable option for those who aren’t ready to invest in real estate. However, buying a condo can be a practical and lucrative move that sets you up for future financial success. Purchasing a condo allows you to build equity in the home that you wouldn’t with renting. A condo can also be more affordable than a single-family home, making them a popular option for first-time home buyers.
However, these advantages can come with a few disadvantages. One reason condos are more affordable is they come with less space than a detached house. And despite being smaller, you’ll pay extra each month in HOA fees.
Buying A Condo For A Vacation Home
Another reason someone may invest in a condo is for a vacation or second home. Buying a condo as a vacation home can be a great option, especially if you already pay a mortgage on your primary residence. In this case, you can put equity into another property that’s close to your favorite vacation destination.
Whenever you invest in a vacation home, it’s important to consider how much time you’ll actually spend there. If you’ll only occupy the home for a few weeks each year, you’re taking on a mortgage and paying each month for a property that’s just sitting there.
In this case, it may be worth renting the property when you’re not using it. In fact, the money you make renting the condo may cover your mortgage costs and HOA fees. If you’re considering renting the condo, even for a small part of the year, be sure to confirm the HOA allows short-term rentals.
FAQs
Investing in a condo can be a smart decision, especially in an expensive real estate market. Condos often cost less than single-family homes and you don't have to worry about maintenance or repairs.
Is it worth investing in condos? ›
Condos are typically cheaper than single-family homes, but tend to appreciate in value over time similar to detached properties. Condos can be a smart investment for first-time homebuyers, vacation homeowners and rental property investors.
Why do condos not appreciate in value? ›
Condos may not appreciate in value as quickly as single-family homes because, almost always, what's appreciating is the land, not the building. This can be especially important for first-time homebuyers looking at their purchase for investment potential.
Why are condos harder to sell? ›
A significant part of the reason condos remain harder to buy and sell has to do with financing guidelines. (1) FHA financing, which is possible with only a 3.5% down payment (which can be a gift), lower credit score and higher debt-to-income ratio, now requires that the entire complex be FHA approved.
Is buying a condo smarter than renting? ›
Pros of buying a condo
If you see yourself staying in the same place for five or more years, buying may make more sense. Plus, buying has advantages over renting: Building equity occurs with every mortgage payment. Deducting your mortgage interest payments from your taxes can pay off.
Do condos ever increase in value? ›
Even though condos generally appreciate at a slower rate than single-family homes, they're still likely to increase in value over time. Some of the factors that can impact appreciation include: Location. Walkability.
What is the disadvantage of investing in a condominium? ›
1. HOA Fees. One of the main disadvantages of condo ownership is the obligatory homeowners' association (HOA) fees. These fees are recurring monthly or annual costs contributing to the maintenance and upkeep of common areas, amenities, and the condo building's exterior.
Why do people not buy condos? ›
Resale challenges
Condos can be difficult to resell because of the narrow pool of buyers interested in these properties. Families with multiple kids often want yards and some people may be turned off by the idea of living by someone else's rules. The costs associated with condo living also make the buyer pool smaller.
What adds the most value to a condo? ›
5 Simple Upgrades to Increase Your Condo's Market Value
- Go Granite. Minor kitchen upgrades are one of the changes that can bump your condo to the top of the list with buyers—while also boosting your asking price. ...
- Refresh Appliances. ...
- Bring On the Bathroom. ...
- Reflect on Flooring. ...
- Step Up Your Storage.
Real Estate Appreciation Formula
Therefore, If you hold the condo for five years, how much would it be worth? The appreciation value would be approximately 1.252, indicating a 25.22% increase in value over the period.
Condo pros
Less maintenance – If you own a house, all of the upkeep of the property falls on you. If you don't want to worry about maintenance as much, a condo might be a better fit. More perks – Unlike a house, many condo communities come with amenities like a pool or playground, and features like security systems.
Why do condos take so long to sell? ›
Influencing Factors: Location, pricing, and presentation significantly affect the time on market. Competitive Pricing: Properly pricing your condo based on market analysis attracts buyers and expedites the sale.
Why is condo living great? ›
Condos Retain Their Value
And while you still have to pay HOA dues (Home Owners Association), maintenance is covered in those dues. That tends to translate into condo owners finding their housing budgets more predictable than those caring for and upgrading a single-family home.
Do you build equity in a condo? ›
Purchasing a condo allows you to build equity in the home that you wouldn't with renting. A condo can also be more affordable than a single-family home, making them a popular option for first-time home buyers.
How does equity work in a condo? ›
Build Equity
Unlike rent, which offers no return on investment, every mortgage payment you make on your condo is a step toward full ownership. Over time, as you pay down your mortgage, the equity—the portion of your property that you truly 'own'—increases. As the value of the condo appreciates, so does your investment.
Is a condo nicer than an apartment? ›
Less rental turnover also means that the insides of condos are often in better condition than apartment units. Cost. Added amenities and improved condition aren't free. The owner may pass HOA fees on to you, effectively adding hundreds of dollars per month to your rent.
Do condos build equity? ›
Purchasing a condo allows you to build equity in the home that you wouldn't with renting. A condo can also be more affordable than a single-family home, making them a popular option for first-time home buyers.
Is renting out condos profitable? ›
Condos as an Income Property
Individual units in a condo building or complex can make excellent investments as income properties because they offer relative affordability, tend to appreciate in value, and offer your tenants perks and amenities they can't get in a single-family house.
What are the advantages and disadvantages of owning a condo? ›
Pros and Cons of Buying a Condo
| Pros | Cons |
|---|
| May be easier to afford than a single-family home | HOA and maintenance fees |
| Location, location, location | Abide by the HOA rules |
| Increased security | May have limited parking |
| Amenities like a pool and a gym | Less storage space |
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