Condominiums as investment propeties may not be the best idea

Items to Verify When Looking for a Condominium
Items to Verify When Looking for a Condominium

Why Condominiums Aren’t Good Real Estate Investments

Items to Verify When Looking for a Condominium
As a result of the real estate market crash in 2007, local markets in many cities have been flooded with an abundance of bank-owned and unsold developer-owned condominiums, many of which are being offered at significantly low prices. This may cause the real estate investor to wonder if condominiums are good real estate investments. The answer is no, and the reasons are as follows.
Condominium Fees
Every tenant in a condominium pays condominium fees to cover the costs of maintaining the common facilities and services in the building. Condominium association fees may range from hundreds to thousands per month depending on the building type, building requirements and amenities offered. Usually, the monthly condominium fees are used for the property’s master insurance policy, doorman, snow removal, garbage removal, etc. For luxury condominiums, the fees may be used for maintaining the amenities such as fitness rooms, swimming pools, parking, 24 hour concierge, etc.
Monthly condominium fees make it virtually impossible for an investor to put down the minimum amount required to purchase an investment property and still end up with a sufficient cash flow. In order to make the condominium work as a cash flow positive investment, a higher down payment is required which means less money is available for future or present opportunities and the leverage opportunity is diminished. In short, the return-on-investment (ROI) and cash flow on a condominium are less than what they would be on a single family or multifamily home investment at the same price.
Special Assessment
Over time, the condominium association will need money to make improvements like new windows or a new roof and will require each unit’s tenant to pay his/her share of the expenses. Special assessments improve the property, but can cost several thousand to tens of thousands per unit. Therefore, a special assessment negates positive cash flow or turns an investment cash flow negative for a year or several years.
Other Investment Concerns with Condominiums
Landlord Control
Unlike single family and multifamily houses, condominium owners are subject to condominium bylaws and must follows rules set by the property owner.
Rental Restrictions
Condominium associations have started limiting the number of units in a building that can be used as rentals. This should be taken into consideration if you purchased a condominium as an owner occupant but with an intention to rent it out as an investment in the future.
Volatility
Condominium values drop more quickly than single family homes and condominium values don’t appreciate as well as single family homes.
These are the reasons why a real estate investor focused on return-of-investment and cash flow shouldn’t buy a condominium and instead, buy a single family or multifamily home.