Should I invest in a condo?



As I briefly mentioned in my last column, I'm not a fan of investing in condos. I dislike the troubles behind owning them, and I dislike them as an investment. Although there are a few exceptions to the rule, I will probably never own a condo as an investment.

The first set of concerns weigh on all who buy a condo, not just investors. These are the costs of owning a condominium. For starters there is the condo association fee. Most home purchases are part of an association, which tends to all of the common areas My parents pay less than $100 a year for their single family home. Biff and I pay, on average, about $70 a month for each of our town homes. The condo owners I know pay between $200 and $400 a month in condo association fees.

Why so high? For one thing condos have a great deal more common area than single family homes. There are lobbies, offices, exercise rooms and pools, not to mention the common roof. All of these things must be maintained, and the maintenance will climb every year. Unlike the 30-year fixed mortgage that charges you the same amount every year (and therefore decreases every year when adjusted for inflation), condo association fees will rise over time.

But sometimes that association fee isn't enough. If too many repairs hit in too short a time, the condo association can extract that payment from the owners, which can sometimes cost in the tens of thousands of dollars for each owner. This comes in liu of having to pay for repairs to a single family home, by yourself. But with a house you can control the care and the abuse it encounters (to some extent).

Condos are a pain for everyone who owns, but they have even more added pains for investors. Condos (outside of any bubble) tend to appreciate extremely slowly in most areas of the country. There's a very good reason for this. Consider, if you will, this "real estate expert" and his view on why condos are an extremely good investment (as always, emphasis mine, bad grammar theirs):

Sylvia:

Could you explain to me that condo and townhouse and what the benefits are of buying a condo our town house because I am not sure which one to buy for an investment?

Jerry:

One of the advantages of condominiums is that in the future, the growing trend will be as the baby boomers get older, they will be seeking to downsize from what they are currently living in and going into low maintenance structures.

Condominiums are popular and will remain so and grow in popularity in the future. You’ll have to take my word for that. All you have to do is look around and see the growth of condominium developments that are spreading out everywhere. That’s because statistics show that the baby boomer generation as we get older is going to want smaller, easier, affordable, maintenance-free housing.

He's right about one thing. Look around you at the new condominiums springing up all around you. That's your future competition for sale, rent and every other business transaction. Then look around at all the empty space, the old houses that are falling apart and will probably be bought by a developer in the next 10 years. That's your competition for sale and rent 10 years from now. Of course, at that point your competition has brand new condos and you just have an old one.

Take another look at that plot of land. How many houses do you think could be built there? 10? 25? Against how many condos? 100? 500?

Unlike houses, which are all relatively unique (due largely to the plots of land they are on), condos are all the same. The only thing that is unique to a condo is the view it offers, and that's out of your control. Aside from the view, why would anyone choose your condo over the one two floors higher that's also for sale? What? You didn't realize that no matter when you sell, you'll likely be competing with other people in your same building? During a normal time (not the current crash certain areas are in) you probably won't be selling against 30 owners, but almost always certain to be selling against one or two. And what advantage can you use against them except lower price?(Photo taken from the Bubble Meter, also the source of my previous bubble pic here. All were taken in Northern Virginia)

With a house you can make improvements, maybe finally get around to building that deck. Then when you sell, you can try (or your realtor can try) to convince potential buyers that your house is worth maybe a little more than the one that just sold down the street last month, because yours has "features". Try doing that with a condo. If John Doe down the hall has an emergency and sells in a hurry for $50,000 lower than expected, your buyers are going to look at the comparable and ask "His unit is just down the hall, with the same floorplan. "Why is your place worth $50,000 more?"

But at least you can rent the condo out, right? The answer is a firm maybe. Your fellow condo owners are not fans of investors, those who buy and then rent out. Doing so lowers their property values. From a realtor website (with several other good questions to ask):
What percentage of units is owner-occupied? What percentage is tenant-occupied? Generally, the higher the percentage of owner-occupied units, the more marketable the units will be at resale.
The New York Times reports that condo buildings that have too many rented units could have trouble qualifying for mortgages! Try selling a condo when your buyer can't find a bank willing to back the mortgage.
Mortgage brokers and loan officers interviewed stressed that to lend money to the co-op corporation, for the underlying mortgage, or to individuals purchasing co-ops or condominiums when owner-occupancy is below 50 or 60 percent, certain conditions must be met. They explained that without these conditions, the risk of an investor who owns a lot of apartments going bankrupt -- and leaving the co-op in the lurch -- was just too high.
As a result, owners in condos are pushing their associations (and rightly so) to limit the number of units avaiable for rent. It is within the rights of the condo association to restrict you, the owner, from renting out your condo. (If you read the link, the answer that the columnist gave the owner is that since his association's By-Laws allow renting, they'd have to amend the By-Laws to pass any rules restricting investors).

So are condos all bad? Of course not, and in some areas of the country they make great investments. Where are those magical areas, you ask? Where there is no land available to build more.

I believe strongly that if you are interested in investing in condos, that you look to urban settings. Chicago, New York, San Fransisco, these are places that don't have any room for more condos. Alternatively, certain amentities, such as oceanfront properties, simply can't be replicated 2 miles inland. In both of these situations, basic economics tells us that if the demand grows, and no one can increase the supply, the price will go up. Buying condos in areas (such as the suburbs around any major city) where developers can add supply by the hundreds simply doesn't make sense.

The problem is that condos in areas like these can go for more than single family homes in most other areas. If you can't afford to buy a condo in those super-hot markets, look elsewhere. Town homes sell well as starter homes (unless in dowtown areas, then they are expensive homes), have no restrictions on renting and many families who can't afford to buy love the space and the yard afforded by a town home. Instead of buying a condo, why not buy an apartment complex? If you look to invest in a college town, look at buying one of those 6-8 unit complexes. No fees (since you control the entire building), no restrictions, and few competitors when buying. And they can often be purchased for less then the price of a condo in one of the major US cities.

Keep all of this in mind the next time you're looking at making that investment. The people who make the most from condos are the developers. And even they lose money sometimes.

57 comments:

Chicago Condos said...

From luxury high-rise developments to loft condos, condoDomain Chicago is your source for new condos in Chicago. For both re-sale and new construction, surf condoDomain Chicago today.

Celia said...

These articles are fantastic; the information you show us is interesting for everybody and is really good written. It’s just great!! Do you want to know something more? Read it...:Great investment opportunity at best western jaco beach, best western jaco beach resort ,beach front hotel jaco puntarenas. Visit us for more info at: http://www.jaco-bay.com/

Yoke Wong said...

Excellent article. It is especially helpful to know where to invest in condo - where the lands are scarce. You are right in pointing out that investing in condo can be risky as it may not be easily rented out due to HOA retriction.

Yoke Wong
Take Your Piano Playing To The Next Level
www.YokeWong.net

atayala said...

For me, I will invest my own condo.

Deirdre G
condo for sale Philippines

Anonymous said...

酒店經紀 酒店打工 酒店工作 酒店上班 酒店兼差 酒店兼職 打工兼差 打工兼職 台北酒店 酒店應徵 禮服酒店 酒店 經紀 打工 兼差

makati condominiums said...

Lots of people investing a condo this time. And I want one too.

Angelo H

Condos Puerto Vallarta said...

Condominiums generally appreciate in value at a rate which is almost consistently higher than the inflation rate.

Pia @ condo in Philippines said...

A condo can be a great investment and a great place to live. For some, living in a condo means no worries about garden maintenance, availability of recreational facilities such as a swimming pool and tennis court etc.

Paul said...

For People who want to invest in condominium in the Philippines contact +639266290584 this is DMCI Properties.

Lakisha Zimmerer said...

There are several advantages to condominium living. One is that you get to enjoy all the building’s amenities, which commonly include recreation and fitness facilities. Moreover, you need not worry about its maintenance – everything is taken care of. Another advantage is safety and security. A condominium is tightly guarded by personnel 24/7.

Skies Miltonia said...

The visitors will surely considered this post as best. I also get lot of information on condos for sale from the article.

Anonymous said...

Remove anonymous comments and put on a spam filter (maybe you should be moderating them?), and I might take your articles more seriously than I do now.

Toronto Condo Investment said...

A condo can be a great investment and a great place to live. Specially for those people who wants to live and the city and have a modern lifestyle.

Toronto Condo Investment

sofia marielle said...

Invest in a condo is one of the wise decision if you want a city life, aside of that you can be sure that your properties are safe because of the high security measures in the building.


condo in philippines

Natalie Tesorio said...

For me, I will invest some Philippine condos here. So that I could see were money used to go. And someday if I want a new house, I could stay to the condo where I buy.


condo units for rent

Anonymous said...

I'm curious to find out what blog system you are working with? I'm experiencing some small security problems with my latest site and I would like to find
something more safe. Do you have any recommendations?
My website - How To Cure Acne

Kirstz said...

For me investing on a condo is a good one but there's something to consider. I really appreciate your article and it is very interesting too. Hope someday I can invest my own condo.

Anonymous said...

If some one needs expert view on the topic of blogging then i propose him/her to visit this
web site, Keep up the good work.
Here is my website - avangardg.Ru

Anonymous said...

Woah! I'm really enjoying the template/theme of this site. It's simple, yet effective.

A lot of times it's very difficult to get that "perfect balance" between superb usability and appearance. I must say that you've done a superb job with this.
Also, the blog loads extremely quick for me on Safari. Exceptional Blog!
my page :: best acne treatment in stores

New Launch Condo said...

I am not much into reading, but somehow I got to read nice information on your site. Simple to understand and helpful. We will look forward for your future updates. I will visit here very often.
Thanks!

north vancouver condos said...

I found that site very usefull and this survey is very cirious, I ' ve never seen a blog that demand a survey for this actions, very curious.

Anonymous said...

Hi are using Wordpress for your blog platform? I'm new to the blog world but I'm trying to get started and set up my own.
Do you need any coding expertise to make your own blog? Any help would be greatly
appreciated!

Also visit my blog post ... schnell viel abnehmen

Sky Miltonia said...

This blog Is very informative , I am really pleased to post my comment on this blog . It helped me with ocean of knowledge so I really believe this site will do much better in the future.

Anonymous said...

I loved as much as you will receive carried out right here.
The sketch is tasteful, your authored subject matter stylish.
nonetheless, you command get got an edginess over that you wish be delivering the following.
unwell unquestionably come further formerly again as exactly the same nearly a lot often
inside case you shield this hike.

my web blog radioblende corsa c

Anonymous said...

I'm amazed, I have to admit. Rarely do I come across a blog that's both educative and engaging, and without a doubt, you've hit the nail on the head. The problem is an issue that too few folks are speaking intelligently about. I am very happy I stumbled across this in my search for something relating to this.

Feel free to surf to my webpage: kohlenhydratarme Diät Erfahrung

Anonymous said...

I do not even know how I ended up here, but I thought this post was good.
I do not know who you are but definitely you're going to a famous blogger if you are not already ;) Cheers!

Check out my webpage :: steuerberatung in wiesbaden
Also see my site :: steuerberater voraussetzungen

Anonymous said...

This is really interesting, You're a very skilled blogger. I've joined your rss feed and look forward to seeking more of your excellent post.
Also, I have shared your web site in my social networks!

Have a look at my weblog ... anlagen wiesbaden

Anonymous said...

Good day! I just wish to give you a big thumbs up for the great information
you have right here on this post. I'll be returning to your blog for more soon.

Stop by my web site :: abnehm ernährungsplan
my page > algen zum abnehmen

Anonymous said...

Hi, I do think this is a great web site. I stumbledupon it ;) I
am going to come back yet again since i have book marked it.

Money and freedom is the best way to change, may you be
rich and continue to guide other people.

my blog paleo diät erfolg

Anonymous said...

Actually no matter if someone doesn't understand afterward its up to other viewers that they will help, so here it occurs.

Also visit my page :: glutenfreie rezepte

Anonymous said...

The other day, while I was at work, my sister stole my iPad and tested to see
if it can survive a 30 foot drop, just so she can be a youtube sensation.
My iPad is now destroyed and she has 83 views. I know this is entirely off
topic but I had to share it with someone!

Also visit my blog post :: paläo ernährung

Anonymous said...

I am really inspired along with your writing
talents as smartly as with the structure to your weblog. Is that this a paid theme or did you modify it your self?
Anyway keep up the excellent quality writing, it is
uncommon to see a great weblog like this one nowadays.
.

Visit my website; wordpress seminar

Patrick Tan said...

condos are good if you are living in a fast-paced lifestyle. Most condos are located at a strategic location near the commercial establishments, schools and transportation services. You just have to find the one that fits your budget and your lifestyle.

Anonymous said...

Good day! Would you mind if I share your blog with my facebook group?
There's a lot of people that I think would really enjoy your content. Please let me know. Many thanks

My site http://discreetphysici13.newsvine.com/_news/2013/03/31/17542654-details-for-people-taking-a-flight-on-korean-airlines

Anonymous said...

I enjoy what you guys are usually up too. This type of clever work and coverage!
Keep up the excellent works guys I've included you guys to my blogroll.

Feel free to surf to my web blog - dailystrength.org

Anonymous said...

I'm curious to find out what blog platform you happen to be working with? I'm having some minor security issues with my latest site
and I would like to find something more safeguarded.
Do you have any suggestions?

Have a look at my web site short term housing in nyc for students

Anonymous said...

Hey. I was thinking about adding a link back to your blog since both of our
websites are based around the same topic. Would you prefer I link
to you using your website address: http://www.blogger.com/comment.
g?blogID=31155720&postID=9219800553626251327 or blog title: Blogger: Lording the Land.

Be sure to let me know at your earliest convenience.
Thankyou

Have a look at my page :: furnished rentals boston area

Anonymous said...

Interesting blog! Is your theme custom made or did you download
it from somewhere? A design like yours with a few simple tweeks would really make my
blog stand out. Please let me know where you got your design.
Thanks

My site ... zumba samba pants do they run a little bigger

Toronto Condo said...

Thank you for the information, I think there are a lot of people that I think would really enjoy your comment.

Toronto Condo Investment

Anonymous said...

Greetings! Quick question that's completely off topic. Do you know how to make your site mobile friendly? My weblog looks weird when viewing from my iphone. I'm trying to
find a theme or plugin that might be able to resolve this problem.
If you have any suggestions, please share. Appreciate it!



Review my web-site - hi tech watches for men

Anonymous said...

Your blog seems to be having some compatibilty problems in my internet explorer browser.
The content appears to be running off the webpage
pretty bad. If you would like you can contact me
at: alfredo-zielinski@bigstring.com and I'll shoot you over a screen shot of the problem.

Take a look at my web site refrigerator repair columbus ohio

iphone said...

We will give examples of repairs and prices and if you give us a call we will try and help you diagnose the fault with your iPhone over the telephone we are a smartphone repairs company. We are located on the outskirts of Belfast,

Frank James said...

Condominiums generally appreciate in value at a rate which is almost consistently higher than the inflation rate.I'm curious to find out what blog platform you happen to be working with? I'm having some minor security issues with my latest site....


1000 Museum Miami Condo | 1000 Museum Condo

Anonymous said...

Wow! In the end I got a web site from where I can truly take valuable information concerning my study and knowledge.


Feel free to visit my weblog ... Section 21 Notice Form

Anonymous said...

Thanks for an thought, you sparked at thought from
a angle I hadn’t given thoguht to yet. Now lets see if I can do one
thing with it.

my blog post ... having trouble getting pregnant the third time

Miamiroomtostay said...

Miami is town of heaven and includes a sensible vary of places to remain that extends from the simplest of luxury hotels to span budget hotels and spacious Miami Furnished Apartments with affordable costs.

Anonymous said...

UNBELIEVABLE That is Great

my homepage; six pack shortcuts download free

Anonymous said...

I only possess a handful of hundred "friends" on Fb since
I only "friend" individuals that I'm currently friends with, or types I perception I will get to understand better/am getting to understand. Since I keep the circle near, I feel a lot more comfortable putting up statii like "I'm so enthusiastic about my date tonite!

" or alternately "Boy which was a uninteresting date.

" Given that I speak about my daily life, I never genuinely really feel it really is appropriate for men and women I might be relationship to possibly see minutae about other men and women I'm relationship that are not them. And very same goes for me, I don't need to see about their dates. I presume that unless of course we're exclusive, we're both dating other men and women, and it is just great etiquette not to shove it in someone's encounter.
Now, in the event the particular person I am dating is like you and "friends" every person they satisfy, then a little status like mine is going to get lost in the flood, and doesn't subject. But, I just feel it is excellent manners to not entail an individual in Facebook circles till it is far more "serious.
"

Here is my site ... facebook status updates to attract women

Anonymous said...

Secondly, you create a relatively wild claim. That free facilities that give possibilities for those that cannot pay for
them on their own doesn't boost factors, if I recognized properly?. . Just how can you? make this claim? Where is your documentation? Can you present any examples of exactly where cost-free (higher end) schooling, or healthcare did not result in improvements?

Also visit my web blog: desensitizing creams For premature ejaculation Side effects

Anonymous said...

If some one desires expert view concerning blogging and
site-building afterward i advise him/her to pay a quick visit
this web site, Keep up the good job.

Feel free to surf to my webpage ... kitchen remodeling ideas on a budget

Anonymous said...

I loved as much as you will receive carried out right
here. The sketch is tasteful, your authored subject matter stylish.
nonetheless, you command get got an edginess over that you wish be delivering the following.
unwell unquestionably come further formerly again since exactly the same nearly
very often inside case you shield this increase.

My page; http://orangecountyhank71.edublogs.org

Carlos Miguel De Villa said...

Condos are good investment in the future. High-rise condominiums in business capitals like condos in the fort are good value for your money.

Marian Smith said...

Condos are a good investment, but be sure you choose the right developer. There are lots of well-known company in the industry, you may choose from them. Just like the Florence in the Mckinley Hill, Taguig, the developer is the Megaworld.

Ethan Smith said...

Buy & sell new and used iPhones.
Wide selection of new and used iPhones for sale.
More at used iPhones

Le Parc said...

Great Post! I find your blog very helpful for real estate and I am sure others do as well. Keep up the good work!

leparc at brickell condominiums

Augustus Martinez said...

Like this blog. I like to read this kind of blog about real estate.

Augustus @ Bonifacio Global City

Blogger said...

Did you know that you can shorten your long links with Shortest and make cash from every visitor to your short links.