Buying a condo is a great way to break into today’s real estate investing landscape. Not only does condo investing share many of the same benefits with single-family real estate investing, but it often comes at a lower entry cost. As a result, you may want to consider investing in a condo for the first addition to your own portfolio. Before you do, however, there are some things you need to know. If you are interested in buying a condo for investment purposes, read the following guide to get you started off on the right path.
A condominium, otherwise known as a condo, is a multi-unit complex building in which each of the units are owned individually. That means a condominium can be any multi-unit building, from apartments to offices, as long as each unit’s owner can claim legal ownership over their space with a recordable deed. As such, condos are nothing less than a viable alternative to single-family homes for today’s investors. In fact, there’s a large contingent of investors that have made a lucrative living on investing in condos, and there’s no reason you couldn’t, as long as you play your cards right.
[ Know a great deal when you see one? Download this FREE deal analysis worksheet to help determine your “profit potential” on any property ]
The steps for buying a condo are not unlike buying a single-family home, but there are subtle differences worth considering.
Determine What You Want To Accomplish: Every investor has and end-game, or at least they should. Determine why you are investing in the first place, and make sure buying a condo will get you one step closer. If for nothing else, there’s no reason to buy an asset that doesn’t contribute to your end-game. Only once you know what you want can you be certain you are making the right move by buying a condominium.
Research, Research, Research: If you are confident buying a condo will get you one step closer to your goal, start conducting the research to backup your claim. This is where you will do everything you can to learn anything you can. How’s the market doing? What type of property will you need? Uncover anything you can about buying a condo in your particular market, and double check everything you learn. This is where you’ll want to find out if a condo will meet your needs.
Secure Financing: If you are considering buying a condo for investment purposes, the first thing you need to do is get your finances in order. Those using a traditional lender will, therefore, need to make sure they are in a position to borrow money. More specifically, those using a bank will need to make sure they will receive approval. It’s at this time that traditional borrower will need to make sure their credit score is up to the task and that banks won’t find any reason to turn them down. Investors intent on using private money should also consult with whomever they intend to borrow from, to make sure they will have the money when they need it. To be clear, you will want to secure financing before you even start looking at condos; that way, you’ll know how much you can afford and close on a deal faster.
Get Help: Real estate is a people business, and buying a condo is no exception. You will want to make sure you align your services with the right professionals. Consider hiring an agent that specializes in condos, as their assistance will prove invaluable. And agents aren’t the only help you should consider; there are a number of professionals that can help, so don’t be afraid to ask for assistance. The right partners may be the key to landing the deal of your dreams.
Find A Deal: Again, I recommend hiring an agent to help you find a deal; they will know exactly where to look for a condo that meets your criteria. This is also the step where at that research comes in handy. When you are looking at a condo, don’t forget to mind due diligence. Take not of any condo fees or dues that may apply. Confirm the rent will be enough to cover the mortgage. There are a number of things you need to take into consideration when looking for a deal to buy. Most importantly, pay special considerations to comparables; they will be your best asset for determining whether or not you should buy a particular condo or not.
Make An Offer: If you took my advice, and you are working with an agent, they will give you a contract to sign with your intent to buy and how much you are willing to spend. The seller may accept your offer or they may enter into negotiations; this isn’t a bad thing. Negotiations mean they are interested, so come prepared. Do not submit an offer you can’t backup with data.
Tie Up Loose Ends: Provided the offer is accepted, you will then proceed to set a closing date. Pick a day that is convenient for both you and the seller, and start getting things in order; namely the finances, contingencies and escrow account. It’s also at this point that you’ll want to make sure you have the proper insurance.
Close The Deal: In the event everything falls into place, go ahead and close the deal.
I want to make it abundantly clear: this is by no means a comprehensive list of every step associated with buying a condo. It is, however, representative of some of the most important steps you should never forget. To be clear, you should consult a professional before moving forward with your own condominium purchase.
The buying a condo vs. renting debate appears to have no end in sight, and for good reason: each side has legitimate reasoning. On the one hand, buying a condo has tremendous upside. Most notably, purchasing a condominium allows owners to build equity in a physical asset. As such, each mortgage payment gets them one step closer to owning the property free and clear. On the other hand, buying a condo is expensive, and not everyone can afford to do so. There are also those that will argue the downside of being locked into a 30-year mortgage. Those more inclined to rent may really like the idea of being able to pack up and leave once a lease is up. Of course, rents are historically high, and show no signs of slowing down. On top of that, when you rent, you aren’t building any equity in a property; you are essentially losing out on all the money you would otherwise be building equity with if you owned.
Buying a house vs. a condo is a bit less divisive of a topic than that of buying a condo or renting one. If for nothing else, single-family homes and condos share a lot of similarities. There is, however, one significant difference that warrants your consideration: Whereas homeowners purchase the home and the land it is situated on, condo ownership is relegated to the space inside each individual unit and perhaps a portion of the shared common area. As a result, buying a single-family home is typically more expensive, but that’s not to say there aren’t some condos that can eclipse their single-family counterparts.
Each option will coincide with its fair share of fees, as condos will typically have association fees and homes may belong to a homeowners association (HOA), but other than that, the condos and homes are a lot more similar than people assume. Each will have owners build equity in an asset over time
Through no fault of their own many people assume condos and townhomes are the same thing; they are not. While the two assets share many similarities on the surface, there are many more differences that help the two stand on their own.
First and foremost, condo owners only own the interior of their own unit. Common areas, such as the building’s exterior, lawns, barbecue areas and walkways are all property of the structure’s homeowners Association. Townhomes, on the other hand, own their unit’s interior and exterior, including the roof, lawn and driveway. That said, townhomes typically coincide with more ownership.
By design, most townhomes are built in rows, and typically share at least one wall with their neighbors. On top of that, townhomes usually have two more more stories to consolidate space. Condos, on the other hand, tend to come with more of a variety. Condominium architecture can rage anywhere from the penthouse of a skyscraper to a quaint group of cottages, and anything in between.
While both townhomes and condos usually come with HOA fees, condo owners will typically pay more; that’s because townhouse owners are usually expected to maintain more of their own property than condo owners. That said, the amount townhouse owners save on HOA fees may go straight into higher insurance premiums. Since most townhouse owners need insurance that covers both the exterior and interior, it’s safe to assume they will pay more than the average condo owner.
It is a simple question, but nonetheless pertinent: Is buying a condo a good investment? The answer, however, isn’t so simple. It is entirely possible that buying a condo could be the best investment you ever make; consequently, it may not be a good idea for others. Truth be told, there is no universal answer for whether or not buying a condo is a good investment, as each assets represents a different scenario. It is worth noting, however, that condos are, in fact, a very viable investment option. More importantly, buying a condo can be a great investment if done correctly. If the numbers add up, and the profit margins make sense, there’s no reason an investor shouldn’t invest in a condo.
Buying a condo can represent a great move for new investors. If for nothing else, buying a condo to flip or rent out isn’t all that different from rehabbing or renting out a single-family home. However, the price point of a condo is often more friendly to newer investors that don’t yet have a lot of funds. Therefore, if you are looking to break into the real estate investing landscape, you may want to consider buying a condo for yourself.