Six years have passed since the real estate market hit bottom, and investors are now having a tough time finding bargains to flip or rent for monthly income. As most single-family properties increase in price, investors are looking for less expensive alternatives, such as townhouses, mobile homes, and condominiums.
Is investing in condos the right way to go? Ethan Roberts, a real estate writer, examines the pros and cons to help determine whether or not this is a good idea. Here are some of the pros.
Lower Purchase Price – The biggest advantage to investing in condos is that the purchase price is typically lower than single-family homes in the same area. Although prices vary according to geographical area, condos are usually 25% to 30% lower than single-family houses.
In addition, taxes and dwelling insurance are much lower than for a single-family home, since the exterior of the building is insured by the condominium building itself. The only liability the investor would incur would be if a tenant or guest were injured inside the actual unit. The tenant, not the landlord, would be responsible for insuring the contents of their home.
Fewer Repairs – Since the condo owner is not responsible for exterior repairs or renovations, there are far fewer repairs that will be necessary over time. Investors also need not worry about landscaping, siding, or a new roof – outside of any costs included in an assessment.
Buyer’s Market – Investors may be pleased to discover there are fewer competitive bids for condos in foreclosure than single-family homes.
Greater Amenities for Tenants – Tenants often prefer to rent condos because of amenities such as a swimming pool, exercise studios, and clubhouse activities – adding value for the investor/landlord.
To sum up, condos may be a more worthwhile investment because of the lower costs of purchasing, insuring, and taxes. There also fewer worries when it comes to repairs and maintenance. However, there are some cons when it comes to investing in condos.
Monthly Association Dues – Whatever savings there may be from the lower cost associated with investing in a condo may be offset by monthly association dues.
Condos can be More Difficult to Sell – The number of approved FHA mortgages for condos has declined, so many condos are now being purchased for cash. Those buyers seldom pay the full asking price.
Slow to Recover – Condos are the last asset to rise in price during a recovery in the real estate market.
Unexpected Assessments – A new swimming pool or foundation repair can deplete a condominium’s reserves. Therefore, the condo owner may need to pay a one-time assessment to replenish the reserves – thus affecting total return on investment.
Each investor must carefully consider the pros and cons of purchasing a condo. In some cases the returns on investment are often considerably less, as opposed to investing in a single-family house.