A condo or sometimes called a condominium is a privately owned residence usually located inside a bigger residential or commercial property. Condominiums and apartments are the simplest forms of rental properties. Condo rental properties could be great for those who are starting out. The owner of the property can live in it as his/her primary residence or lease it to tenants and receive a monthly rental income.
It is possible that you have been wondering if rental property investment is your call. At the end of this article, you will see why rental properties could be one of the best investment journeys you have ever taken.
Before we jump into rental property investments, it is important to know that there are many other ways you can invest your money in real estate. For example, you can invest in land, commercial properties, or industrial estate, whole-selling, house flipping, etc.
However, rental properties are a good choice for many investors and have made a lot of people rick around the globe.
Table Of Contents
1. Advantages of condo rental properties
a. Less maintenance
Condos are smaller compared to other types of properties (usually a few bedrooms and bathrooms). Because of this reason, it is not difficult to take care of a condo.
You can also attract a lot of tenants especially those who have busy lives like students, doctors, teachers, small families, etc.
In addition, tenants like condos because they don’t have to plow snow, mow the yard, clean the pool and fitness center, etc. This is why condos could be a great investment for you.
b. Condos are affordable
Since condos are smaller, they are usually cheaper compared to other types of properties in the market. You pay less money to enjoy a comfortable small space.
Let’s say that you want to buy a condo for $100,000 with a 20% ($20,000) down payment. You will need a mortgage for the remaining 80% or $80000.
The monthly payment plus interest charges for this mortgage will be much cheaper than what it could be if you purchased a $300,000 with a 20% down payment.
c. They are more secure
Since condos are in big complex buildings they tend to have security guards (in some areas) or be in gated communities. This adds an extra layer of security for the community, in general.
Having a lot of neighbors around you gives you more chances to be noticed if something happens to you. In other words, people will not do stupid things in the community because someone will notice them.
Again, this depends on the location. There are some areas where people cannot walk outside during the night even if they live in condos.
As an investor, you will increase your chances of having reliable tenants if you buy a condo in a safer neighborhood.
d. Proximity to city life
Cities employ a lot of people and most of them cannot afford to buy houses in those cities. That is why many condos are built in suburbs or in cities to attract those tenants.
You can take advantage of this situation too and buy something for rental or for yourself if you are starting out the homeownership and have a small budget.
e. Amenities
Most condos come with a lot of amenities. Common amenities include but not limited to fitness facilities, pool, outdoor parks, recreational sites like tennis courts, golf courts, etc.
Once you own a condo you are going to automatically have access to all these amenities. This could be a fair price if you had to get all those services elsewhere.
You must remember that you will pay the Home Owner Association (HOA) fee for owning a condo. This fee will cover maintenance activities around the complex.
As a condo rental investor, this fee will do a great harm on your cash flows.
f. Appreciation
Condos do not appreciate much compared to other forms of properties. However, there is still some small appreciation you can enjoy if you buy at the right time and the market works in your favor.
As a landlord, you can enjoy your cash flows plus some appreciation when the market moves up.
2. Disadvantages of Condo rental properties
a. Home Owner Association (HOA) Fee
Homeowner association(HOA) fee is the money or fee each condo owner pays every month to the Home Owner Association. This fee is used to take care of many activities and expenses to keep the facility running.
All amenities such as the pool, fitness center, buying new equipment, cleaning commons area, and other shared areas in the facility are taken care of by the association. On top of that, the association will use the fee for other services such as snow removal, landscaping, roof replacement, etc.
All these services are good only for the tenant. They get to live in a beautiful place and do nothing in terms of taking care of the condo.
Why is the HOA fee bad for landlords?
Your only objective as a landlord is to make money through cash flows. Rental properties do not cash flows that much in the first place. For this reason, the HOA fee will make it difficult for your condo to make you money.
Without cash flows, you will be no different than a person who owns a house and pays a mortgage on it. You can not survive long on a business that pays you nothing. The only benefit is that the tenant will help you pay down your mortgage. The property may appreciate a little bit over time which will be an added bonus.
The HOA fee can change depending on the market and projects necessary on the condos complex. Some of these projects can include Foundation reinforcement, replacement of the roof, landscaping, etc.
For example, if you were paying $200 and one of those projects pops; the fee can be increased by like 100% ($200) more to make it $400. This is double what you were paying. If you were barely making cash flows, you will start losing money on the property.
The HOA fee can also increase depending on the development of the city where your condo is located. This is because goods and services tend to increase as the economy of the city increases.
b. Noise and lack of privacy
I know that there are a lot of people who like condos and I think they are a good investment. However, living in a condo is like living in an apartment.
In apartments, tenants are close to each other and this can sometimes cause major issues. It is possible that you can have a very laud neighbor who, for example, parties every night. Because of this, your condo experience can be awful.
Due to the lack of privacy, your condo can sit on the market for a very long time. Without a tenant, you will be paying the mortgage and other expenses related to the property using your own money. This is the last thing you want to happen.
c. Lack of a meaningful appreciation
I am not trying to say that condos do not appreciate at all. We know that properties appreciate based on the market, economic conditions, and location. However, when you buy a condo, there are little to no meaningful updates you can make to it.
Of course, you can change the layout of the rooms, carpet replacement, windows, update the kitchen, etc. However, there is a limit to what you can do to improve the quality of your condos. That is, it is difficult to increase the square footage of your condos since rooms are already small like the ones in apartments.
One way to add appreciation to a property is through a forced appreciation. In this form of appreciation, the owner buys a property that has minor or major renovations, fixes them, and increases the value of the property within a short period of time.
Unfortunately, it is hard to achieve this form of appreciation on condos because they have small square footage. In addition, the investor has no access to the outside area such as a yard since it is managed by the HOA.
For this reason, condos tend to stay in a small range of value and do not appreciate much overtime. They do realize a small appreciation or depreciation depending on the market.
d. Condos are hard to sell
Condos are generally very difficult to sell and of course, everything depends on the market, location, and economic conditions. I know people who sold their condos real fast. I also know some who never sold their condos until after one year.
Many people prefer single-family houses as opposed to condos. Those who buy condos are small families, single people, those who relocated to an area for work-related purposes, students, or people who have a very small budget.
These people own condos temporarily and end up putting them on the market once they are done with school, families got bigger, raised enough capital to upgrade, etc. As a result, we end up having a lot of these properties on the market with fewer buyers.
e. Condo rental properties have a lot of regulations
Another reason condos may not be a good investment is due to a lot of regulations. Keep in mind, every property you can buy will have regulations of all kinds.
For example, if you have a single-family home, your city might prohibit you from doing particular landscaping in your yard even if you own it.
Condos in particular seem to have other regulations on top of city regulations. Some condominiums require that you live in your property for a period of time before you use it as a rental property! That is a major setback for your investment because you will be losing money on the property.
f. Condo rental properties are hard to scale
It is difficult to build a portfolio made of condos. Although they are cheap to buy, you will go through a full house buying process for every condo you buy. That is going through showings, paying closing costs, mortgages applications and related fees, etc.
This is why serious investors should avoid condo rental properties.
Final Words
Like any other investment, condos have their pros and cons. As an investor, you are the one to decide if condos are right for you.
Your investment goals and budget will help you determine if you are going to start with condo rental properties or not.
The good news is that you don’t need to start with a lot of money in real estate. You can start small and build your portfolio one house at a time.
If you started investing in condos and things are not working, you can always try town-home rentals properties, single-family homes rental properties, or multifamily rental properties.
I encourage you to transition to other forms of rental properties especially multifamily. They appreciate and cash flows better and they are easy to scale up.
