Pros & Cons of Investing in Condos

A condominium is similar in nature to an apartment complex. Units are individually owned, however homeowners association controls common facilities and responsibilities such as heating and cooling systems, hallways, roofs, and other exterior structures. All costs and responsibilities associated with these features are taken care of by the association. There are pros and cons of living in a condo, but what about purchasing a condo for an investment? Just like any other real estate investments there are pros and cons associated condos.

Pros

1. The biggest pro of owning a condo is, if place in the correct area it can bring a premium resell price or a premium monthly rental. In many areas the supply outweighs the demand for condos. However some major cities condos are a highly desired commodity. If you find the right area, you will be sitting on a gold mine.

2. Lower purchase price than a typical single family home. Even though the condo may be in a high property value area it will tend to be cheaper than a home because of the shared costs of maintenance and external facilities. It's a pro because the monthly rental will be the same or very close to a home in the same area.

3. Condos have restrictions that help maintain the value of the property. Condos usually have a strict set of guidelines that tenants must follow. Joe Neighbor won't be able to have his broke down car parked in his yard or his washing machine sitting on his front porch. This is great for resell or rental.

4. Even though it is also considered a con sharing the cost of major repairs can be a pro. If you get a great deal on a condo that needs some repairs it's a definite pro to have other members help pick up the bill.

5. Condos offer great facilities such as a swimming pool, tennis court and fully-equipped exercise room, etc. These are great perks for rental or resell especially since there is no maintenance involved in the amenities.

6. A maintenance man, usually covered under your association dues, will take care of any problems such as busted pipes, clogged pipes, blown light bulbs and fuses, etc. This is especially handy if you are renting your condo.

7. Landscaping and yard work are covered. Again this expense is taken care of with your association fee. No need to worry about cutting a tenants grass or doing any yard work. Your condo is virtually maintenance free.

8. In most cases there is security for you condo. Many condos will have a gate to pass through before you gain entrance to the complex. There will also always be somebody around to keep an eye on things if you are out of town.

9. It can be your second home. Purchase a condo in your favorite vacation spot and rent it out while you are not living there. Fully furnished ocean front condos can rent for $1,000 to $5,000 per week. You'll have a good portion of your mortgage paid for part of the year while always having a place to stay when you need a vacation.

10. Many condos offer rental services to help you rent out your unit. This can help you keep your unit occupied and keep the cash flow moving.

Cons

1. Homeowner association dues. Not only do condos have association dues, but also they are usually much more expensive than normal homeowner association dues. If you own a condo to resell or rent high association dues will eat away your profits.

2. More fees on top of association dues. Sometimes there are so many necessary repairs that normal association dues aren't enough to cover the costs. In this case the owners pick up the bill. It could be a big unexpected, unbudgeted expense.

3. Time Shares are a form of condos and are horrible investments. You never actually own anything physical you only own a certain period of time. Even if you own the time-share you still have to pay maintenance fees and association fees. If you own a timeshare for investment purposes you are probably losing money or looking to sell you investment.

4. There are a lot of restrictions on condominium living. Although this can be a pro it can also be viewed as a con. Restrictions limit the number of potential renters or buyers. Someone with pets or a boat may have a hard time meeting the rules.

5. Usually condos have few choices about the exterior décor. If a tenant wants to change the color of the condo they will probably be out of luck. From and exterior stand point it's "what you see is what you get".

6. Privacy is a concern for a lot of potential renters and buyers. Because condo living is shared living it's hard to keep anything private from your neighbors. Having a private conversation with friends or family on the patio or on the phone outside is probably out of the question. This will limit the number of potential renters or buyers.

7. Condos are a complex investment financially and legally. There are many more rules and regulations that must be followed than a typical home. Be sure you understand everything in the contracts before you buy.

8. Condos appreciate at a much slower rate than a home. This is probably due to the lack of land ownership that accompanies a condo. As property continues to be developed the value of undeveloped land will increase. In 20 years what will be worth more, a condo or a home sitting on a one-acre lot?

9. Competition for resell or rental. When it comes time to resell your condo more than likely there will be other owners trying to sell their condo at the same time. Since all the condos in your unit are basically the same it becomes a price war. Whoever wants to go the lowest on their price will probably win.

10. Oversupply of condos will cause a decrease for demand. Let's take a one-acre lot for in a highly desirable neighborhood for example. You could put 4 2-story homes on that lot or a 5-story condominium complex with 20 units. From an investor standpoint it sound obvious to build the condo, but the problem is the supply is more than passing the demand. This will again decrease the property value of the condominiums.

All investment properties have risks. Before you decide to purchase any real estate you need to carefully weigh the pros and cons. Doing some research up front will save you a lot of time and money in the future.