What Investors Need to Know About Buying a Condo for Investment
(This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)
What is a condo?
- A condo is an individual unit located in a building with other individual units.
- Unlike an apartment, a condo is owned by its resident, not rented from a landlord.
- Residents own and maintain the interior of their unit but don’t own the property on which it sits.
- The exterior, lawn, and shared spaces are maintained by the Homeowners Association or HOA.
Unlike townhouses, condo owners only own the interior of their unit. The building's exterior is owned by the Homeowners Association (HOA). All members share in the costs and maintenance of the common areas by paying monthly HOA fees.
Condos range in style and can be found in a high-rise in New York City or in a row of back-to-back units. They come in all shapes and sizes and can be seen in Class A, B, C, and D neighborhoods all throughout the world.
Condos tend to have a community focus which is one of the biggest draws for condo investors. Condo communities can contain a grilling area, business center, pool, dog park, covered parking, clubhouse and more.
HOA fees vary drastically, but $200/month is right around average. However, fees vary based on what the HOA provides.
Every homeowners association has its own policies. Some HOAs provide more varied and extensive services than others, and as such will set their fees accordingly. As a general rule, most homeowners associations cover:
- Maintenance of communal areas
- Trash removal
- Water and sewer services
- Pest control
Condo association insurance typically covers building exteriors and common areas. However, this type of home insurance doesn't likely cover what's inside your specific unit. It also may not cover all damages outside your unit.
Pros and cons of condo investing
Like all investment properties, there are pros and cons of investing in a condo.
Let's walk through them below.
Pros of condo investing
- Amenities - Condos have more of a community built in than townhomes and other investment properties. This includes clubhouses, pools, and gyms. Because of these amenities, you're generally able to charge higher rents to tenants.
- Security - Most condo communities have security and are gated. This is helpful when convincing tenants, especially those with families, to move in. Depending on the building, you may have secure entrances and parking, a doorman or concierge, and other amenities that increase security and safety.
- Less expensive - Because condos tend to be more compact and require less land than single-family homes or duplexes, they tend to be a more affordable way to own property. Property taxes tend to be lower as well. For some first-time buyers, condos can make ideal starter homes because they don’t require the upkeep and maintenance of a detached home but you can still reap the benefits of ownership and building equity.
- Social aspect - Condo communities will often organize social events like pool parties and barbecues. Because you tend to see your neighbors in hallways and in elevators, you’re more likely than not to meet them in person.
- Appreciation - Condo's tend to see high rates of appreciation because they tend to be near urban, up-and-coming neighborhoods primed for rapid appreciation.
Cons of condo investing
- Potential HOA issues - Although you're paying high HOA fees, maintenance issues such as lawn mowing or pool cleaning may not be handled correctly.
- No privacy - Unlike townhomes, your condo is surrounded by neighbors above, below, and beside you.
- Rules - Each resident must abide by the community rules on issues such as visitors and pets. Rules change from one community to the next and are determined by the condo's property management company.
- Investment risk - Condos can be a risky investment because you are sharing ownership with other people in the same building. It's possible that if one person forecloses or short-sells their condo, it can take a toll on your value since you own a condo in the same complex.
The difference between a condo and an apartment
People often confuse the condos and apartments because, structurally, they look the same.
The simple difference between a condo and an apartment is ownership. You own a condo and you rent an apartment. In rare cases in specific markets, like New York City, you can buy an apartment.
In an apartment building, all of the units are usually owned by a single person or company who rents out the units. Whoever owns the building owns all of the common spaces as well.
Both types of dwellings generally have multiple floors and units on each, with shared amenities and common areas.
Should you invest in condos?
Condos are a great investment. Property appreciation, extra security, and direct access to amenities more than make up for the extra $200/month you will spend in HOA fees.
Plenty of investors will see the higher HOA fees and assume condos are worse investments because of the hit to monthly cash flow. But that's thinking short-term compared to what you should be thinking about: The future worth of your property in the long term.
Buy a condo with Lofty AI
At Lofty AI, we show you cash-flowing condos located in neighborhoods primed for rapid appreciation, in seconds.
Just toggle on the “Condo” filter, and you’ll immediately see condos that are cash-flowing, undervalued, and located in growth neighborhoods in over 30 markets. This makes finding properties out of state extremely simple.
You can even find motivated sellers that are desperate to get rid of their condo. When you come across a motivated seller, that lets you make a low-ball offer that is likely to be accepted.
Lofty AI isn't the only real estate investing software out there to find condos. But, it's the quickest and most accurate real estate investing platform.
If you're interested in learning more, you can request access by clicking the button below.