Are condos a good investment?

Investing in a condo can be a means to having a home away from home or generating passive income. But a fluctuating housing market can impact whether buying a condo is a good investment. Still, the average condo sells for $54,700 less than the average single-family home price in 2023.

Aside from the state of the market, how you intend to use the condo you buy will also have a major influence on whether it’s worth the investment. Have your goals in mind as you consider this option.

Let’s explore whether buying a condo is a smart financial move for you and what you need to know before you invest in this type of property.

Is a condo a good investment?

Ultimately, whether or not a condo is a good investment will depend on several factors. These include your intended use of the condo and the state of the housing market in the location you’re considering.

With lower purchase prices and more desirable locations, condos can certainly be profitable investment properties and enjoyable vacation homes. But keep in mind, condos can come with less control due to the community’s homeowners association (HOA). In addition to collecting monthly fees from condo owners, HOAs set rules for what you can and can’t do with your unit.

Some condos won’t allow you to rent while others will allow long-term but no short-term rentals. Be sure to check these rules before deciding on your property to ensure it’s the right investment for you.

Why buy a condo?

Purchasing a condo has its appeal. They typically come at a lower cost than single-family homes and are often located in desirable locations like city centers. They can also be a smart option for military personnel, who may move often and can use a VA loan to finance a condo.

Condo owners also pay monthly fees to their condo association for exterior maintenance and additional amenities. These can include access to pools or dog parks depending on the complex. Not having to worry about landscaping and snow removal may be well worth the extra cost for some buyers.

As we’ve mentioned, the benefits and drawbacks of investing in a condo depend on why you’re buying one. Let’s explore a few reasons in a bit more detail.

Buying a condo vs. renting a primary residence

Renting can be an affordable option for those who aren’t ready to invest in real estate. However, buying a condo can be a practical and lucrative move that sets you up for future financial success. Purchasing a condo allows you to build equity in the home that you wouldn’t with renting. A condo can also be more affordable than a single-family home, making them a popular option for first-time home buyers.

However, these advantages can come with a few disadvantages. One reason condos are more affordable is they come with less space than a detached house. And despite being smaller, you’ll pay extra each month in HOA fees.

Buying a condo for a vacation home

Another reason someone may invest in a condo is for a vacation or second home. Buying a condo as a vacation home can be a great option, especially if you already pay a mortgage on your primary residence. In this case, you can put equity into another property that’s close to your favorite vacation destination.

Whenever you invest in a vacation home, it’s important to consider how much time you’ll actually spend there. If you’ll only occupy the home for a few weeks each year, you’re taking on a mortgage and paying each month for a property that’s just sitting there.

In this case, it may be worth renting the property when you’re not using it. In fact, the money you make renting the condo may cover your mortgage costs and HOA fees. If you’re considering renting the condo, even for a small part of the year, be sure to confirm the HOA allows short-term rentals.

Are condos a good investment for rental property?

You’ll often pay less for a condo in a desirable location than you would for a single-family home in the same area. Since some HOA fees include exterior maintenance services, you may save time and money on the upkeep of your condo's exterior. These can both contribute to a higher cash flow of rental income.

If your condo offers access to common areas like a gym or pool, this can also incentivize travelers or long-term renters to rent your property.

Remember, condominium laws vary among communities. Some prohibit short-term rentals, while others prohibit renting in general. As you do your research, make sure your specific condo guidelines allow you to rent out the property.

Do condos appreciate in value?

Properties in desirable areas can appreciate in value faster. Even so, condos tend to appreciate slower than single-family homes. Still, certain features can cause a condo to appreciate at a faster rate. These may include community amenities, property maintenance and walkability to nearby cities and attractions.

What you should know when buying a condo

You have a lot to consider when purchasing property. With condos specifically, you may have a few additional factors you wouldn’t have to consider with single-family homes. For this reason, we recommend you consider the following aspects before you buy a condo:

Condo association fees

As mentioned before, condo fees are a factor to consider when you buy this type of property. In addition to mortgage costs and property taxes, condo owners must pay monthly fees to their HOA. You’ll need to plan for this in your monthly budget if you buy a condo.

Certain restrictions

Depending on the specific condo community, certain restrictions may apply. This may include restrictions that limit how you can use the property. While some condo associations prohibit renting, others have different restrictions. Some prevent you from raising livestock while others require regular lawn upkeep.

These rules and regulations vary drastically between communities. Before you buy a condo, be sure you fully understand the expectations to avoid surprises down the road.

Different financing process

Financing a condo is a similar process to financing a single-family home. But it can be a bit more difficult due to extra steps and paperwork. This is primarily due to the HOA or management company that operates the condo community.

When applying for a condo mortgage, the lender is essentially approving both the buyer and the community itself for financing. The process may take longer as the lender waits on specific documents from the HOA. Condo interest rates are also typically slightly higher than single-family home interest rates.

The bottom line: Is a condo right for you?

Buying property comes with the responsibility of choosing the right home in the right location at the right time. With so much to consider, how do you know if a condo is right for you? With lower overall price tags, condos can be a popular choice for first-time home buyers and real estate investors alike. But be sure to consider your budget, planned use of the condo and the real estate market before you make an offer.

To better determine if buying a condo is the right fit for your needs and budget, begin the mortgage approval process today.