Are Condominiums a Good Investment?

CONDOMINIUMS AS AN INVESTMENT

As is with all real estate purchases, buyer's and investors alike must do their research and be aware of the current market trends and the rate of return for your real estate investment. As a general rule, condominiums are traditionally the most volatile of real estate investments. Looking back to the 1970s or 1980s or even in (2005-2007) most anyone can still show you the financial scars they carry.

Regardless, condos in recent years have made a strong comeback especially with the popularity of purchasing in resort areas or as a second home. Trends change all the time however, if the pattern continues one should approach buying a condo with knowledge and caution.

One must keep in mind that usually condos are tougher to sell in most areas than single-family homes. Add the mix of the in-famous homeowner’s association with their monthly fees, you have to deal with management issues, rules, and costs that may be out of your control for maintenance and upkeep.

If considering buying a condo, remember to consider your prospective tenant or buyer when you resell. Have you priced so high that your pool of buyers is limited? Regardless if it is in the median price or below, how many people live in one-bedroom condos? Is the development so old that the HOA (homeowner’s association) dues so high and will continue to rise as the development ages and needs repairs?

Condos, as a general rule, fit into two distinct categories – livable and rentable. Inexpensive condos that rent well often don’t appreciate much in value. You can get away with buying a $100,000  or less condo and renting it for $500/month forever. In 20 years, it may barely have appreciated above inflation. Another condo located near downtown or the beach may rent for negative cash flow and appreciate 10-15% per year. One must remember that the normal formulas that apply to single-family homes, are in no way consistent with condos, which is why all investors approach condos with extreme care.

Look for all the LIMITATIONS when buying condos

Check out the homeowners CC&Rs and rules. Some homeowners association rules restrict the rental of units, so make sure you check the limitations before you purchase a condo that you plan to rent. With the new laws in place, many lenders have limitations on financing condos, such as a requirement that a certain percentage of the units be occupied by owners.

Regional Condo/Co-Op Sales

U.S. 530,000 Northeast 210,000 Midwest 80,000 South 170,000 West 70,000 vs. last month:  -1.9%  10.5%  0.0%  -5.6%  -22.2% vs. last year:  -32.2%  -33.8%  -44.4%  -25.4%  -24.7% Click Here to view details

Regional Sales Price of Condo/Co-ops

U.S. $165,300 Northeast $236,200 Midwest $138,600 South $112,200 West $149,100 vs. last year:  -5.5%  4.5%  -10.5%  -17.5%  -6.8% Click Here to view details

Shirlee McGarry® is a Realtor(® with Principal Realty Group and a freelance writer and published author in Utah
Chart from ShirLee's Housing Trends Newsletter - reports from NAR

Pictures - Fotosearch stock photos