Some people find it in their best interest to buy an apartment, while others don’t. Is buying an apartment specifically for you a good investment? By the end of this article, you will be able to determine for yourself whether you are the right candidate to invest in a condo community, whether you are an investor or looking for a personal home.
First, let’s take a look at what a condominium is and who is ultimately in control of it.
What is a condo?
Owning a house means you own the unit and the property, while an apartment is very different. Basically, a condo owner only owns the airspace in an individual unit within a building. They share ownership and responsibility of common areas and common property, such as stairs, hallways, walls, outdoor areas, and sidewalks.
VvE versus condo association
Homeowners in private communities are generally required to pay condo or HOA fees. While both HOA and condo associations exist to enforce rules and guidelines in private communities, these associations differ from each other based on the differences between homeowners and owners in a condo community.
Since the main difference between a homeowner and condo ownership that we have just discussed is the amount of ownership, buyers in these situations have different roles when it comes to participating in community association boards and decisions.
Condominium owners share joint ownership, and thus joint interest or responsibility because of the residents’ shared interest in what the association owns. With a Homeowners Association, owners are responsible for their individual properties and lots. Unlike the condo community, the HOA itself owns the common areas in private communities.
So, after learning that condominium owners don’t own much more than the airspace in their units, ask yourself the central question of this article: “Is buying an apartment a good investment?” Let’s look at some of the positives to owning an apartment.
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Advantages of investing in apartments
If you choose condo ownership for your home investment, there are several good things about living in a condominium:
1. Cash flow
The biggest advantage of owning an apartment is the easier potential for greater cash flow. Condominiums are typically built in densely populated areas such as cities, tourist destinations, and near university/college campuses. Because of these factors, investors can usually take advantage of the great rent-to-buy ratio.
They can buy condo units at a lower price and charge higher rents, creating strong cash flow. In particular, vacation rentals can result in increased cash flow for an investor due to rising weekly rental rates depending on the season and local events. Tourists are usually willing to pay more if they are visiting for specific reasons.
One of the best things about condo ownership is that you share the amenities with the condo community. Condominiums have a monthly fee known as a community charge, which covers the community amenities.
Here is a list of several typical condominium amenities:
- 24 hour security
- Swimming pool
- dog park
- tennis courts
- Laundry room
- Charging stations for electric cars
- Lockers for bicycle storage
- Recycling Center
One thing that appeals to certain buyers is that condominiums are not as simple as one might think. In reality, condo communities usually pride themselves on the fact that each condo is unique. However, other markets (such as mansions) differ in that their properties and houses usually look the same.
4. No maintenance
The potential buyers of apartments (usually) fit into two categories: first-time buyers on the housing market or retired couples. First-time home buyers are usually not ready for all the costs of a home, and retired couples are usually looking to downsize.
The main selling point of a condo community for this target audience is the convenience of little to no maintenance costs. They don’t have to worry about maintenance, such as mowing the lawn in the summer and shoveling snow in the winter. Repair and maintenance costs are kept to a minimum.
Condos are generally a cheaper investment than buying a single-family home. This is of course not always the case due to changes in the housing market. Keep in mind that since condos are generally lower in price, they are easier to sell in the overall housing market.
Now that you know some of the positives of a condo property investment, let’s discuss some of the drawbacks that you should be aware of.
Disadvantages of investing in apartments
While investing in condominiums certainly comes with some benefits, you need to look at the downsides to make an informed decision about whether buying an apartment is a good investment for you.
In addition to your regular tax payments, interest, and principal on the mortgage, you’ll need to factor in association fees. These costs can range from $100-$300 per month and play an important role with buyers not willing to buy when you are willing to sell.
2. Limited Market
Because condos typically appeal to first-time buyers or older retired couples, your buyer’s market is limited to people from that particular demographic. You most likely won’t be able to start a bidding war for your property – and a limited market means it can be harder to sell.
Condos don’t value as much as detached single-family homes. Regulations enforced by condo association boards can contribute to this lack of appreciation. Also, while the potential is fantastic, cash flow can still be unpredictable.
Are you the type of person who likes to throw a party or often have relatives? Condo ownership means scarce parking. The lack of privacy and space sooner or later drives buyers out of the condo community.
5. Similar sales
When you sell, buyers will rate you against other condo units in the complex. Even if you upgrade your unit, they won’t be enough to raise your retail price over another comparable unit with the same number of bedrooms and bathrooms.
6. Your unit is a bubble
When you buy, your home inspector is there to make sure your dishwasher is working and your hot water tank isn’t old. That is it. They don’t check the condition of the building. In fact, such a report or investigation does not exist unless there is reason for an association to believe that there are problems.
There are few ways in which a buyer can ensure that the building does not leak or have other material defects. Developers are not always concerned with building integrity. Instead, they are concerned with protecting their bottom line. This can lead to shortcuts that go unnoticed.
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7. Rules, Regulations and Rental Policy
YOU to have to be familiar with condo association rental policies before investing in this type of property. Condo associations have strict rules and regulations that you are not aware of unless you read through all of the administrative documents.
Even if you have to read them with a glass of wine, read them! You need to know what kind of agreement you are entering into when you buy an apartment. Do you allow renting out your unit? Are pets allowed on the lawn? Can you have three children? Are Christmas decorations allowed to hang for New Year’s Eve? Avoid making a big mistake and read through all the rules and regulations before investing in the condo community lifestyle.
8. Condo Association Signs
The strict rules, guidelines and regulations are set by the condo association councils associated with each condominium. This means that your life and your apartment are completely run and controlled by a group of people you have never met. You have no power.
One way to solve this problem is to be as involved with your board as possible. Attend meetings, participate in community projects and apply for board positions. If you want to see changes, it is your responsibility to be that change. However, be prepared to invest a lot of time, money and energy. It can take years of advocacy and hard work to achieve the regulatory changes you seek.
After considering the pros and cons of investing in a condo property, you should consider a few questions before proceeding with a purchase.
Questions to ask before buying an apartment
You have to be your own detective. If you’re about to buy an apartment built in the 1970s that has never had its siding replaced, this is your first clue not to buy.
You want to be prepared with some questions to ask before making your final purchase decision:
- What does the insurance cover?
- Do I fully understand the rules and regulations and may I have a copy of them to read?
- Do I fully understand the monthly costs?
- Is there an ongoing lawsuit?
- Do you have a resale package that I can view?
- How often do you check your fire alarm systems?
Keep in mind that a mortgage lender will also scrutinize a particular condo community’s finances before approving you for a loan.
If you are a first-time home buyer or an older adult looking to downsize, buying an apartment may be a good investment for you. You then have a lower down payment and minimal maintenance costs than if you were to buy a single-family home.
If you don’t fit into this narrow segment of the home-buying population, consider renting rather than buying. Residents who are tenants have even fewer costs and responsibilities to worry about than the owner. Rules and regulations do not affect your ability to relocate as you do not have to worry about selling your unit.
For investors, consider how willing you are to deal with the unique drawbacks of buying an apartment before investing in this market. While they can be profitable, condos can also cause major headaches.
In short, to answer the question: “Is buying an apartment a good investment?” you should look at the current stage of life you are in and consider all the pros and cons discussed in this article.