Are Condos a Good Purchase?
Condominiums are traditionally the most volatile of real estate investments. Ask anyone who bought condos in the 1970s or 1980s and they’ll show you the financial scars on their backs.
Condos have made a strong comeback in recent years because of the popularity of purchasing second homes, particularly in resort areas. Whether this trend will continue is uncertain, but keep in mind that condos are generally a tougher sell in most areas than single-family homes. And because condominiums involve a homeowner’s association, you’ll have to deal with management issues, rules, and costs that may be out of your control.
When buying condos consider your prospective tenant or buyer when you resell. Is this priced so high that
your pool of buyers is limited? It may be in the median price or below, but how many people live in
one-bedroom condos? Is the development so old that the HOA (homeowner’s association) dues are high and
will continue to rise as the development ages and needs repairs?
For the most part, condos tend to fit into two categories – rentable and livable. Cheap condos that rent well
often don’t appreciate much in value. You can get away with buying a $50,000 condo and renting it for
$500/month forever. In 20 years, it may barely have appreciated above inflation. A different condo near
downtown or the beach may rent for negative cash flow and appreciate 10 – 15% per year. On short, the
normal formulas that apply to single-family homes aren’t as consistent with condos, which is why investors
need to approach condos with extreme caution.
Look for Limitations when Buying Condos
Be aware that 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. Also, many lenders have limitations on
financing condos, such as a requirement that a certain percentage of the units be occupied by owners.
Crye-Leike Realtors (931) 648-2112
CLARKSVILLE TN REAL ESTATE