Is buying a condo a good investment?

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What buyers need to know when choosing between buying a condo or a house

Buying a condo has a reputation as a less-certain investment for homebuyers, especially when compared to single-family homes. But the truth is that the payoff potential of a condo is high in some markets. Condos can be especially attractive for first-time buyers looking to get into the market without putting down deep roots. However, it’s important for buyers to know that condos are weighed against different standards than single-family houses when determining investment value. Take a look at what condo buyers need to know to get the most out of their purchase.

Key Takeaways:

  • Condos tend to cost less than single-family homes
  • Location is more important with condos when compared to single-family homes
  • Fees can sometimes make monthly living costs as high as owning a single-family home
  • Condos can be harder to sell when markets dip
  • While condos do come with some limitations and restrictions, they can be great investments under certain circumstances

Why buy a condo?

Buying a condo is a more affordable, flexible way to get into the market.

Condos are often much less expensive than single-family homes in similar neighborhoods.  According to the National Association of Realtors, the national median price for single-family homes in 2020 was $314,300, while the median for condos was $272,200.

Living in a condo also requires less personal maintenance because owners aren’t responsible for the exterior of the building. That means that the building’s HOA management takes care of things like snow removal, mowing, power washing, gutter cleaning, and roof replacement.

Of course, owners will pay condo fees to cover the costs of these services.

Buying a condo also means you have access to high-end amenities that would likely be too expensive in a single-family home, like resort-style pools, gyms, park-like grounds, and more. This means that you’re getting access to a luxury lifestyle for what may turn out to be a more affordable price.

You may also end up paying less for homeowners insurance in a condo. That’s because your actual home’s structure is potentially covered by your contract with your condo association, meaning that you may not personally be on the hook for damage caused by fires or natural disasters. As a result, your insurance policy is really only there to cover your possessions. You just need to confirm with your condo association exactly what is covered.

What to look for when you buy a condo

Just like with single-family homes, condo values increase over time. But how much the price of your condo will increase depends on some specific circumstances. 

People who buy condos are often most interested in where the condo is and what amenities they come with. Here’s a rundown of what makes a condo a solid investment:

  • Location: Is the condo in a growing, highly desirable city with access to jobs, arts, culture, and attractions?
  • Walkability: Does the condo offer easy access to work, restaurants, shopping, and more? Is it necessary to own a car to realistically live in the condo? Is reliable, safe public transportation easy to access?
  • Community perks: Does the condo come with perks like a pool, gym, tennis court, and more?
  • Growth Potential: Are you buying in a hot city that’s on the rise?

Generally, a condo is only as valuable as what surrounds it. It’s hard for condos to build value unless the city it’s in is also on the rise.

The general rule is that buying a condo in a highly desirable, urban center is a better investment than buying a condo in a small town.

The exception to this rule is Hawaii. Although the population centers of Hawaii tend to be less dense than in the lower 48, Hawaii’s high desirability makes it one of the better places to buy a condo compared to other states.

green trees in front of white concrete building
Condo buyers can get things like pools and gyms for a much lower price than if they were to look for those amenities in a house

Is buying an old condo a good investment?

Condos are generally built to be every bit as sturdy as homes. A condo could theoretically stand for hundreds of years. Real estate law generally views a condo as having a lifespan of 50 years. When a building is in need of major repairs, there is always a potential for the shareholders of the condo corporation to come together to vote on the fate of the property. Here are the three reasons why this could happen:

  • A complex is older than 50 years
  • A complex is obsolete and uneconomical
  • Complex owners holding more than 50 percent interest are opposed to restoring, remodeling, repairing, or modernizing a complex

It’s important to talk with an agent about specific laws and precedents in a city when purchasing a condo unit that’s part of an older complex.

It’s very rare for condos to be torn down. But it is always more certain that a single-family home will stand for longer than a condo building. That’s why a single family home can retain its value even if the structure, itself, is obsolete. Since you don’t own the land that a condo is built on, you need to know if an older condo is going to stand long enough for you to build equity and see a rise in value. The best way to do this is to think of your condo as a stepping stone and not plan to stay in one as long as you might live in a single-family home.  

Is buying a condo to rent out a good investment?

If you’ve confirmed that you’re ready to buy a home, a condo can be a great rental investment. They are generally easier to rent out compared to single-family homes or apartments because they are more desirable to renters and easier to maintain. When you rent a condo to a tenant, much of the landlord work is done for you already by the HOA. That means you’re putting some of your investment into fees for a condo association but, you won’t be on the hook for showing up to repair, fix, and maintain things the way you would be when renting out a single-family home.

Some condos actually have on-site maintenance staff to help with everyday issues like clogs or missing keys. However, some condo associations do require tenants to call their contractors. Factor this into your decision when searching around for rent-friendly condos.

Many condos also offer the peace of mind of providing built-in security. Some complexes have their own security systems and surveillance. It’s also becoming common for condos to offer perks like secured entrances and concierge desks.

gray concrete building during night time
Condos are a good choice for first-time buyers but they often appreciate in value at a slower rate than single-family homes

What are the drawbacks to investing in a condo?

The perks of condos include convenience and a lower purchase price. However, it’s also important to know why owning a condo is so much different than owning and investing in a single-family home.

Tighter restrictions 

Some people aren’t thrilled about the rules and regulations that go along with condo living. Most associations have rules about what you can and can’t do with your property. If you decide to rent your condo to tenants, you may need to get special approval.

You will also be personally responsible for any violations of condo association terms committed by your tenants.

It can feel like you don’t have complete control over your living conditions when you’re dealing with HOA rules. HOAs can technically restrict the number and types of pets you can have in your home. Your HOA can also make changes to the property that you aren’t happy about. 

The general lack of privacy that goes along with condo living can also frustrate owners.

Homeowners association (HOA) fees 

There are many things you can do to keep costs low when owning a home. Unfortunately, there’s nothing condo residents can do about HOA fees.

Weigh the costs of homeownership and the cost of condo ownership before making a decision either way.

A condo that is significantly cheaper than a home can actually end up costing you the same per month as a house. It’s not unheard of for HOA fees to cost between $200 and $1,000 per month in different parts of the country.

It may be worth it to take on a mortgage for a house that’s $500 more per month than what you’d pay for a condo if the condo has equally high HOA fees. What’s more, HOA fees continue even after a mortgage is paid off.

Getting approved for a mortgage can actually be harder

The lower costs associated with condos don’t necessarily mean getting financing is easier.

Securing financing for a condo is often tougher than getting financing for a single-family home. In some cases, lenders will only approve mortgages for condos if a certain portion of units in the complex you’re looking at happen to be owner-occupied units. Other lenders have stricter rules for credit scores for condo buyers.

Selling can always be a bit of a gamble

Condos are definitely hot when they’re hot. However, condos are much more vulnerable to market fluctuations when compared to single-family homes. It may work out so that buyers are simply more interested in houses in your market when the time comes to sell your condo. What’s more, spikes in your HOA fees could make your condo undesirable to future buyers.

Final thoughts: is it a good idea to buy a condo?

Buying condos as an investment is always less certain than buying a single-family home. However, entering the real estate market by starting with a condo can be the smart option when you’re renting and are ready to own in an expensive, and competitive market.

Frequently Asked Questions

What is the downside of buying a condo?

Condos come with limitations in space, personal style, noise, and more. Condos can also be much harder to sell when markets dip. Plus, HOA fees are forever. Make sure you’re considering your lifestyle when touring a home or condo!

How long do condos last?

Condo structures can potentially last for hundreds of years. However, there’s a separate equation that condo owners need to know about when determining the long-term viability for owning a condo. A condo unit will only remain viable if monthly maintenance fees and property taxes stay below similar condos in neighboring complexes. Demand for a unit will dip if costs and fees are higher than comparative properties in the same area.

Is living in a condo cheaper than a house?

This depends entirely on the market. Generally, a condo’s purchase price will be significantly lower than the purchase price for a home in the same zip code. However, HOA fees can make your monthly payment as much as or even more than the cost of owning a home.

Do condos build equity?

Yes! Condo equity builds the same way that home equity builds. Each mortgage payment that you make helps to build equity in a condo. In addition, any property value increase directly builds your equity.

Is buying a one-bedroom condo a good iInvestment?

Buyers need to be realistic about the fact that the market for a one-bedroom condo is always going to be smaller. An ideal choice would be to purchase a condo with at least two bedrooms. While a one-bedroom condo may be acceptable in a historically hot market, purchasing a one-bedroom condo in a “small town” or more flat market can be limiting when it comes time to re-sella big mistake from a resale or rental perspective.