Is Buying a Condo a Good Investment? Pros & Cons to Consider
Many of our clients come to us with questions on the overall real estate market, and which direction they should go in from an investment standpoint. Although we aren't financial advisors, we are not naive to the fact that real estate can certainly help improve and grow your financial wealth. If you're looking to invest in real estate, you may be questioning which direction is right for you. Should you buy a single family home, or invest in a condo?
There is so much to consider when answering this question and a great deal of nuance. Like any real estate decision, there is no clear smoking gun. The goal of this article is to provide our observations, why buying a condo may, or may not be, a good investment.
What Is A Condo
Before we get into reviewing if a condo is a good investment or not, let's first start off by reviewing what exactly is a condo.
In everyday terms, a condo is an individually owned unit within a community or larger residential building. The condo is typically governed by a homeowner association (HOA), which we'll get into in more detail below. Unlike an apartment building, a condo complex is made up of individual owners who are all paying their own mortgage on the condo they own. Whereas, an apartment building is typically owned by an individual or a company, and is made up of tenants paying rent to a landlord.
A planned urban development, also known as a PUD, is very similar to a condo. However, a PUD is when the homeowner also owns the land the unit sits on. A homeowner can take responsibility for their own property, landscape, etc. Whereas with a condo, considering many of them are in high rise buildings, there is no land for you to own.
Another question many buyers ask related to this topic is, "are townhomes a good investment"? For the purposes of this article, the pros and cons of buying a condo also apply to a townhome. Simply put, the difference between a condo and a townhome is that condos are generally individual units in a larger building while townhomes are attached homes that share one or more walls with an adjacent attached townhome.
The Benefits Of Owning A Condo
There are numerous reasons why one may be interested in owning a condo compared to single family homes. After all, there are a lot of benefits to condo ownership! Here are the most common reasons why our clients are looking for condos in the Nashville market.
Condos are low maintenance
Without a doubt, owning a single family home is a lot of work. Between planting and mowing the grass, laying mulch, power washing the roof and siding, there is no shortage of work when you own a home. Much of these weekend projects disappear for condo owners. The condo association typically takes care of those laborious tasks so you can sit back and enjoy the amenities.
PRO TIP: Check out the top home repairs to complete before you list your house.
Many condos have great amenities
Many condos are turning into mini resorts. In the heart of Nashville, there are numerous condo complexes that include a gym, pool, tennis/basketball court, and even a rooftop deck. It can be difficult finding all of that in a single-family home, that's for sure!
Location, location, location
If you're considering buying real estate as an investment, you've certainly heard of this before. Many condos are located in a downtown area, making them ideal for people working in the city, or for those who enjoy the vibrant nightlife. With just a short walk or Uber ride, you may be able to reach your favorite restaurant, bar, or park. There are also condos that are located on beautiful golf courses, which is not only a pleasure to look at, but a huge convenience if you want to get a round of golf in during the workweek, or on the weekend.
Security
If you're ready to purchase your own place, but not ready to give up the security of living with others, a condo may be the right investment for you. Some condos even have a doorman, or front desk reception area upon entering the building. This provides an extra level of security and can be comforting for those who aren't ready to be 'fully alone' yet.
The community vibe
Without a doubt, if you live in a condo you can be as private, or social, as you want to be. Many of the condo amenities are designed to promote social interaction. If you just moved to Nashville, or if you're looking for that community feel, you can find it in condo living as there are many common areas.
The curb appeal
The homeowners association will likely have their own grounds crew or subcontract the work out to a professional landscaping company to keep the property looking fresh, clean, and beautiful all year round. Between fresh flowers being planted, bushes being trimmed, the lawn being mowed, and trash removed from the grass areas, a well-managed condo complex will be easy on the eyes.
The price of a condo
For the most part, condos are less expensive compared to single family homes. Undoubtedly, there are some high-end luxury condos that will cost you a lot of money, but on average, a condo is less expensive. In Nashville, the median price of a condo in November 2021 was $359,900 compared to $504,700 for a single family home.
PRO TIP: Check out the latest Nashville condos for sale
Concerns Of Owning A Condo
Directly above, we discussed what many of our clients enjoy about owning a condo, and what makes a condo a good investment. However, there are always two sides to the coin. Here are some of the most common reasons why a condo isn't a good investment.
A poorly managed HOA
As part of a shared community, condo owners must pay HOA fees. The HOA fees typically cover the grounds work of the condo complex, trash removal, routine maintenance, and even repairs to the actual unit or complex (for instance, a new roof, new siding, or a paved parking lot). This is a monthly expense that cannot be avoided. The homeowners association, HOA, is responsible to manage this money and spend it accordingly. It can be terribly managed, and what you'd expect to be covered by your HOA fees, may actually not be covered as the money was poorly spent or invested.
To make matters worse, some condo fees are super expensive. If you don't plan on living in the condo long term or taking advantage of the shared amenities, then buying a condo may not be right for you.
Lack of true freedom
When someone owns a single family home, they can do whatever they want to it (provided the home is not located in an HOA)! If they don't like the exterior color, they can make sure to paint it. If they wanted to get a certain style front door, they can do so. When you own a condo, you have to play by the rules of the HOA. If you want a lime green door, but the complex doesn't allow it, you can't get it. If you don't like being governed by rules, this is an important point to consider.
Further expanding on the above point, you may not be able to rent the condo. Some condos are owner occupant based only, meaning if you wanted to move, you'd have to part ways with your condo. From an investment standpoint, this can be a bit restricting. One of the benefits of an owner-occupied condo complex is the 'pride in ownership' feel. When you're the owner/occupant, you tend to take better care of your unit. However, some condos have no rental restrictions, and you may find your condo complex functioning more like an apartment building, which may not be what you bargained for. There's truth to both sides but if you planned on buying a condo in an attempt to build a portfolio of rental properties, you should check with the homeowners association before you make an offer.
Neighbors
When you live in a condo, you'll have a lot of neighbors. The upstairs neighbor may have heavy feet, and the neighbor that shares your bedroom wall may love playing loud rock music. You can't control who moves in, so a good neighbor one year may turn into a nightmare neighbor within the next few years.
Pet restrictions
You may not be able to have a pet if you live in a condo, or, the type of pet you're allowed to have may be restricted. It isn't uncommon to see condos restricting dogs over 40 pounds, or the number of animals you can own.
Limited parking
Some condo facilities have dedicated parking spots, whereas others have a parking lot for all of the homeowners. You may not get the same spot every day, and that can be frustrating. If you own a single family home, you know exactly where you're car will be parked each and every night. In a condo, you may spin the lot a few times to find your ideal spot.
Most condos have a small yard
Some condos don't even have a yard. But if yours happens to include a yard, chances are, it's not that big. If you have large dogs or kids, this may make owning a condo less desirable.
Financing restrictions
Some condo HOA's are not FHA approved, meaning, if you wanted to purchase a condo with an FHA loan, you'll get denied. You may not have a problem with this, but if you ever wanted to sell your condo real estate investment, you limit your potential buyer group to those who do not need FHA financing.
PRO TIP: See a list of FHA-approved condo complexes.
Are Condos A Good Investment As Rental Property?
Perhaps you don't want to personally live in a condo, but you still want to buy a condo as an investment property. Your sole purpose behind this purchase is to transform your condo into a rental property and not only reap the benefits of consistent rental income, but you also want to see your investment appreciate over time.
This is a completely logical thought process and Felix Homes has helped make this real estate investment dream a reality for many individuals. When you buy a condo solely as an investment property, you must consider the pros and cons. We'll briefly cover the most common ones below:
The pros
You don't need to worry about your renters ruining the exterior of the home, as this is covered by the condo association fee.
Although condos are family-friendly, many families would elect to not live in a condo for some of the reasons we highlighted above (privacy, small yard, etc). Why is this a good thing? The fewer people living in your unit means the less wear and tear everything will see. If your two-bedroom condo is occupied by a newlywed couple, the dishwasher, shower, and washer machine will run a lot less frequently than if it was occupied by a husband, wife, and three kids.
In high demand. Condos are a good investment for numerous reasons the least of which is that they always seem to be in high demand. They're affordable, offer great amenities, have low maintenance, and are often located in desirable areas. If you're looking at real estate as an investment option, you'll always want to invest in something that is in demand.
The cons
- If you buy a condo with high monthly fees, you erode your profit and monthly cash flow. Make sure you review the HOA fees of the condo before purchasing it and get a sense of how these association fees have changed over the years.
- Rental restrictions. Many condos have numerous rental restrictions and a long list of rules, which can be subject to change. First, you'll need to be incredibly careful that your condo will not restrict renters at any point in the future, as this can throw your great real estate investing idea away.
Buying A Condo As A Second Home
This is a popular option and for obvious reasons! If you enjoy traveling and would like to own a second home in a different part of the country, a condo may be a perfect option for you. Considering the low maintenance added security, and the major repairs not being your full responsibility, this condo living can be incredibly enjoyable and make condos a good investment compared to single family homes.
Some of our clients have always dreamed of retiring in the vibrant communities in and around Nashville, and have purchased their condos as a retirement home for their future years. If you plan on making numerous trips back and forth from your primary home to your condo, you may want to consider investing in a condo near an airport for ease of access.
It's About Preference
Are condos a good investment? We believe so! From an attractive purchase price to the amenities and desirable location, condos make owning real estate more attainable for many people.
Real estate is not a one size fits all approach. Despite our love for condos, we certainly understand that single family homes can make a great investment as well. Condo investments can be great if you don't want to maintain your home, if you travel a lot, or want to experience that true community atmosphere.
Alternatively, if you don't want neighbors, hate small yards, and have a lot of kids or animals, you may not want to make investments in a condo and should consider owning a home that is a bit more accommodating to your needs and wishlist.
How Felix Homes Can Help
Now that we've gone over the pros and cons, it's time to tell you where we fit in! It doesn't matter what direction you want to go in, Felix Homes can help you find the perfect place to call home (or help you find a great rental property for that matter).
We serve the Nashville and neighboring communities, and make sure to help our clients save money on their real estate transactions! It doesn't matter if you're looking for a single-family home, or a condo, or an investment property, we'll be by your side every step of the way.
We are a 1.5% commission realtor, who on average, helps clients keep over $12,375 of profit when it's time to sell.
Real estate is our passion, and we'd be honored to share our passion for real estate with you. If you're in the Nashville area or looking to relocate to this beautiful city, please drop us a line at 615-354-5731 and we'll be happy to discuss your questions in greater detail!
