The Pros and Cons of Investing in Condos

Single-family homes aren’t the only game in town when it comes to homeownership, building wealth, and fulfilling the American dream. In today’s housing market, where prices continue to challenge affordability, prospective buyers are exploring alternatives that offer value without sacrificing convenience or lifestyle.

Condominiums, commonly known as condos, have emerged as a popular option, especially for first-time buyers and those looking to downsize.

Condos present a unique blend of private ownership and community living. They are often more affordable than single-family homes, offering a gateway into homeownership for many. 

But affordability isn’t the only reason people are turning to condos. With features like shared amenities, professional maintenance, and urban locations, condos can provide a lifestyle that appeals to diverse buyers, from young professionals to retirees.

However, like any investment, purchasing a condo comes with trade-offs. While they may offer a lower price point to get you into the housing market, condos often include monthly association fees and restrictions on what you can do with your property. For some, these trade-offs are worth it; for others, they may be deal-breakers.

Before committing to the down payment, monthly mortgage payment, and potential restrictions associated with condo living, it’s important to weigh the pros and cons. Let’s explore what you need to know before buying a condo.

Pros of Investing in Condos

1. More affordable than buying a single-family home

Condos generally come with a lower price tag than single-family homes, though obviously there are exceptions. A fixer-upper home in a rural area will likely be cheaper than a waterfront condo in an amenity-rich building. 

Barring a similar scenario, however, condos generally have a lower sales price, especially for first-time homebuyers. Of course, the lower purchase price with this type of property often means a lower down payment as well!

2. Low maintenance

When you buy a condo, you’ll be responsible for maintaining the interior of your unit. As with single-family homes, any repairs, remodels, or updates will be up to you. 

However, a condo typically comes with a homeowners association (HOA) or condo association management company that is responsible for the upkeep, repairs, and maintenance associated with common areas, amenities, open spaces, walkways, parking garages, you name it. 

Many condo owners are happy to pay a monthly HOA fee in exchange for not having to worry about all these items. Busy professionals, families with young children, and empty-nesters often buy a condo for this specific reason. 

This low-maintenance lifestyle also makes buying a condo attractive as a second home, vacation home, or even an investment property.

3. Shared amenities galore

Every condo community is different, but many condos do come with perks. Condo owners can enjoy shared amenities, from pools and barbecues to community rooms, fitness centers, and even concierge services, without the additional price tag. In fact, condo buildings can be stacked with lifestyle amenities that are both luxurious and convenient. 

In some cases, you can find these same amenities in single-family homes, but they come with a hefty cost. The same is true of gated single-family home communities. Some often mirror the amenities condos have had for decades, but those HOA fees can be very high.

4. You own it, you personalize it

The HOA may take care of community spaces and amenities, but the inside of your individual unit is yours to do what you want with.

Barring any specific rules and regulations associated with your homeowners’ association, you can customize your unit’s interior as you like. Paint the walls, replace countertops, add crown molding, or turn a bedroom into a yoga studio. You’re limited only by your imagination—and perhaps approval from the HOA for bigger remodeling projects if that’s part of their rules.

This is also a huge advantage of owning a condo versus renting an apartment. With an apartment, you may get upscale amenities (emphasis: may), but the unit still belongs to the building’s owner. Should you choose to change anything, you must revert it back to its original appearance before you move out, or you risk losing all or part of your security deposit.

5. The potential for supplemental rental income

Did your ears perk up when we mentioned purchasing a condo as an investment property? Condos can make fabulous real estate investments for all the above reasons: lower cost of entry, maintenance included, and tons of amenities and customization options. 

As long as your HOA allows it (be sure to check!), you’re free to rent your condo out on either a short- or long-term basis. 

Rent it out short-term—for example, use Airbnb to rent it by the day, week, or month—and you can still enjoy living in the condo whenever you like. 

Rent it out long term, and you have the potential to see your real estate investment appreciate while someone else pays the mortgage and possibly a little extra that goes straight into your pocket!

Cons of Investing in Condos

1. Homeowners association requirements

What’s a pro can also be a con, depending on your point of view. Buying a condo does come with the prerequisite of an HOA and condo association fees. These monthly fees cover maintenance and upgrades and generally keep the property beautiful, but you are required to pay them monthly. 

This cost is definitely something to consider, as the monthly payment must be factored into your budget when purchasing a condo. HOAs also have rules and regulations that need to be followed, or you risk a penalty.

2. Paying for an HOA certificate

Lenders require you to purchase an HOA certification letter that provides information on the development when you buy a condo. This typically costs between $100 and $250 and is nonrefundable.

This document is crucial because it gives lenders insight into the financial and operational health of the condo association. Unfortunately, the information revealed in this certificate, such as a low owner-occupancy rate, a high percentage of owners delinquent on HOA dues, or pending litigation on the property, could prevent the lender from funding the purchase. 

These red flags indicate potential risks but don’t have to be deal-breakers. (Psst: Preferred Rate has programs for “non-warrantable” condos like these—ask us about them!)

3. Getting the development and HOA approved

Are you sensing a pattern here? HOAs may have their own rules and regulations, but other entities, including lenders, do as well.

If you have an FHA or VA loan, these organizations must approve the condo development and HOA. Their approval is based on criteria like the building’s financial stability and the percentage of units owned by investors versus residents. You can get in touch with Preferred Rate anytime to find out if your development is approved by the FHA or VA or even request assistance in getting them approved.

Getting Started

Investing in condos—like any real estate investment—comes with a list of pros and cons. You can make an informed decision by doing your research and partnering with the right real estate agent and lender.

Still unsure if a condo is the right choice for you? Preferred Rate is happy to discuss your financial situation and goals and help you find a home to make your dreams come true. Click here to connect with a Preferred Rate Mortgage Advisor today.