Are Condos a Good Investment?

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Credit: Anna Spaller

If you’re currently contemplating purchasing a condo (versus a single-family home), you may be wondering: Are condos a good investment?

A condominium, or a condo, is similar to an apartment in that there are multiple individual units housed in one building. The difference between an apartment and a condo is that individual condo units are owned and not rented. When it comes to the differences between a single-family home and a condo, however, the biggest contrast is that most condo owners pay monthly homeowners association, or HOA, fees. Because all of the condo owners are sharing a roof, grounds and potentially other amenities like a gym or a pool, these monthly fees go toward covering the cost of maintenance.

While purchasing a home combines both emotion and investment—especially if you’ve waited a long time after years of renting—at the end of the day it’s still an asset. Savvy buyers who are looking to invest in a condo want to ensure they are purchasing something that will appreciate in value. So, what exactly makes a property gain value? In general, it depends on the supply and demand of the market as well as the location of the property.

Thinking about investing in a condo? Here are some of the most frequently asked questions about them, answered by real estate experts across the U.S.

Do condos appreciate in value?

The biggest question buyers have about condos is whether they appreciate in value—especially in comparison to single-family homes.

“Condos appreciate the same way single-family homes do—based on supply and demand. And in real estate, it all comes down to location, location, location,” says Kristen Pollock, a real estate agent in Atlanta.

Traditionally, single-family houses have appreciated more in value than a condo, but some recent trends indicate the tide may be turning, according to Pollock. In Fulton and Dekalb counties, which make up the majority of intown Atlanta, she’s noticed that condo prices are appreciating more than single-family homes. Why’s that? She cites three reasons: Condos are typically lower priced (making them a natural entry point into the market), there’s an increased demand for walkable neighborhoods in city centers, and condos are rich in amenities, which is attractive to buyers.

Is buying a condo better than renting?

If you’re a lifelong renter who is thinking about entering the housing market, you may be wondering if it’s better to remain a renter (and wait until you’ve saved enough for a single-family home) or go ahead and buy a condo. Jesse Sheldon, a real estate agent in Kirkland, Wash., says it’s often best to just jump right in and buy the condo.

“If you are a renter, I would consider how long it would take you to afford a single-family home. That could potentially be five years away. Whereas you could be building equity in a condo right away,” Sheldon says. “A condo is very often someone’s first step into homeownership.”

Of course, every individual’s experience and finances are different, but talking to an agent about long-term financial goals would be a good place to start while figuring it out.

Does a condo make a good first home?

There’s nothing quite like the milestone of owning your first home, but does a condo make a good candidate for your inaugural step into homeownership? Rhonda Mesenbourg, a real estate agent in North Kingstown, R.I., says it depends on the person’s lifestyle.

“If a [buyer] doesn’t want to rent and wants to put their money in real estate, but is worried about having time to upkeep certain aspects—or perhaps travels for work frequently—it may be the perfect choice.”

Because of the HOA fees that condo owners pay, there’s much less maintenance that the homeowner has to do, like mowing the lawn or trimming the trees—a huge bonus for those who have no interest in or don’t know how to do yardwork. Another pro of a condo being your first home is that you wouldn’t be solely responsible for expensive repair work like roof replacement: Depending on how your HOA fees work, this maintenance could be paid for out of your HOA’s reserves.

Are condos a good investment as a rental?

Condos, in general, are less expensive than single-family homes, but does this make them a good starting point for homebuyers interested in becoming landlords? This largely depends on what the HOA’s rules are on renting out individual units, explains Pollock.

“I know many people who moved from a condo to a single-family home and kept their condo as an income property. This is a great way to build a real estate portfolio,” she says. “But if you think you will only live in this property for a few years and then keep it as a rental make sure you review the HOA documents before you buy to make sure there are no restrictions on owner’s ability to rent out their units. Many buildings allow this, but some don’t.”

If you plan on buying a condo for the sole purpose of renting it out, ask your real estate agent to go over the HOA’s CC&R’s (or Covenants, Conditions & Restrictions), which should list all of the limitations of what you can do with the property, including using it as an income property.

Are one-bedroom condos a good investment?

Whether you don’t want to clean the extra space or you can’t afford a bigger condo, a one-bedroom may be appealing if you’re single or don’t have children—but is it just as good of an investment as a two- or three-bedroom place? The answer to this question is contingent on where you live and what the current state of the market is, says Sheldon.

“The only reason one-bedroom condos may be harder to sell is you limit your buyer pool. You will unlikely have a three-person family buy that unit,” he says.

The best place to buy and sell a one-bedroom unit is an urban area, Sheldon says, where there are more people looking at smaller spaces. In the suburbs, however, it could be a much tougher sell. 

Condos vs. a house: Which is a better investment?

As far as investments go, single-family homes have typically appreciated the fastest. But this could very well be changing. A 2017 story in the Washington Post reported that condo market values rose by 38.4 percent from 2012 through 2017, whereas single-family detached houses only appreciated by 27.9 percent in the same five-year period.

When it comes to what investment is best for the buyer (condo vs. a house), it’s all about best fit, which includes the financing they individually have, says Mesenbourg.

“The additional money needed to cover the association fee may alter the amount they qualify for a mortgage,” she says.

Banks also have specific terms that need to be met to lend for condos, such as finding out how much money the HOA has in reserves and the association budgets.

Lifestyle is also a large determination for whether a condo or a house is a better investment, says Pollock.

“Interestingly, in intown Atlanta I am seeing many clients moving from single-family homes to condos. Their kids are entering middle school and high school and they want to take advantage of the benefits of city living and newer amenity-rich buildings and escape the home maintenance tasks that take up their time on the weekends for a more carefree lifestyle,” she says.

In other words, it’s all about what you want and expect out of a home.