Condo Investing: Challenges & Benefits
Buying a condo as an investment is very different to buying one as a home. While you still have to think about specific lifestyle factors such as location, community and amenities, you also have to analyze taxation, equity growth, rental income, closing costs, rules and by-laws. Once these hurdles have been overcome, however, condos offer a number of advantages over other real estate investments. Benefits include lower purchase prices, more reliable rental income, reduced maintenance costs, and a greater opportunity to build equity in many cases.
Lower Purchase Price
Buying a condo can be significantly cheaper than buying a house. While the situation differs considerably from city to city and building to building, at the very least, condos provide investors with more opportunities to enter the property market at the ground level. Detached single-family homes can cost more to purchase than condos in the same location and the many unknown maintenances and up-keep costs.
Reliable Rental Income
Investing in a condo can be a great way to generate reliable rental income. There are lots of factors to consider when it comes to rental demand, from the condition of the property itself through to the location and rent price.
While detached houses can also be incredibly popular in certain areas, a condo investment allows you to simplify the process by focusing on particular demographics and locations. For example, certain neighborhoods and buildings are more likely to attract people of a certain age and income bracket, which allows you to focus your marketing efforts and streamline the rental process.
There are three ways to generate funds from a real estate investment—cash flow, principal pay down, and appreciation. How much equity you can build with a condo investment depends greatly on the location, with some cities and neighborhoods growing much faster than others. Before making an investment, it’s important to analyze market trends such as historical growth rates, time on market, and anything else that will give you an insight into supply and demand. While recent growth rates can help you to forecast future growth, it’s particularly important to be aware of oversupply in the condo market.
While condo investments provide a number of benefits over traditional family homes, perhaps the most obvious benefit is the reduced maintenance involved. This is one of the key factors that distinguish a condo from a detached home, with condo owners not responsible for any maintenance to the exterior of the building.
While condominium maintenance fees need to be paid every single month to cover costs, budgeting is much easier and there are no unexpected surprises. In contrast, people who own a detached house are responsible for all maintenance costs, which are often very expensive and ill-timed. Maintenance costs and services can vary widely, so it’s crucial to do your homework before you sign a contract.
Challenges of Condo Investing
There are some challenges associated with condo investments. Firstly, condo owners enjoy less freedom than other property owners, both in terms of how the dwelling is used and how much you can change it over time. While some people appreciate the control and security that a condo corporation provides, others may struggle with the lack of freedom.
We suggest new condo developments. These typically have much lower condo fees, are under warranty, and will take make years before significant renovations are required. Older condos, on the other hand, have much higher condo fees, are no longer under warranty.