Now, did you read the headline, right? I said buying a condo as an Investment is bad, and not as a primary residence. The difference is enormous.
Below I outline the important ideas to know so you don’t make a bad investment choice. When you think about buying a condo for investment, it’s critical to pause and understand all the nuances you’re about to get involved in.
Risks When Buying A Condo for Investment
High Costs Beyond Purchase Price
Investors often underestimate the financial implications associated with condo ownership. While the initial purchase price might seem reasonable, hidden costs emerge, contributing to a significant financial burden. These can include exorbitant Homeowners Association (HOA) fees, maintenance expenses, and special assessments, making the overall investment less lucrative. HOA fees tend to go in one direction – UP
Then you have special assessments that are like a “surprise attack” coming from nowhere.
Lack of Land Ownership
A critical drawback of condo investments lies in the absence of land ownership. Unlike traditional real estate, where land accompanies the property, condos solely represent airspace. This limitation can adversely affect the market value of condos, making them less desirable compared to properties with land ownership.
Variable Profitability and Desirability
While condos can be profitable in certain scenarios, their success as investment properties is highly variable. Factors such as location, market demand, and economic conditions play pivotal roles. When buying a condo, a development may only have 1-2, 2+2 models, and only 1, 3+2 model. There are limitations and constraints. And if you put too much $$ into your expecting to get more in return when you sell, your comparison is the other exact models which could put downward pressure on your capital contributions.
Or perhaps a Gross Rental Multiple . So when you add up the expense side with HOA’s, a 5% maintenance line item, and 5-10% for Spec Assessments… your cashflow gets eaten away.
Unforeseen Decision-Making
Buying a condo for investments often involve collective decision-making through HOAs. This communal approach to decision-making may lead to unforeseen challenges. Investors of a condo may find themselves subject to decisions that do not align with their interests, potentially impacting the value and desirability of their investment.
Hidden Restrictions and Fees
When buying a condo, it comes with a set of rules and restrictions imposed by HOAs. These restrictions can limit an investor’s flexibility in property management and use. Additionally, hidden fees and rental restrictions can impede the potential profitability of condo investments, adding an extra layer of complexity for investors.
Inability to Rent Short Term
When buying a condo in today’s world there is no AirBnB potential due to HOA Rules & Regs. I often get asked about this. But think about it – how would you like it is your neighbor was renting to strangers on a nightly or weekend basis. All the in-n-out of new faces. Not to mention the additional noise and disturbance.
In conclusion, while condos may appeal to certain investors, understanding these six drawbacks is crucial.
To own a condo and enjoy it as a full time residence is another conversation as the lifestyle a condo brings with pools, gyms, social activities etc… has huge value for owners.
But for investing, you may find your money treated better where you control your asset yourself. Where you’re not confined to high fees, rental restrictions and rents that are tied to other condos in a development.
Investor like more freedom and control.
If you are in the market of buying a condo for personal use, check out my Definitive Guide to Downtown Delray Beach Condos. I share a handful of data points for all 17 Condo Building in the city. Readers express how useful this guide is while looking to buy.
