Most rental homes are single-family homes, but what about condos? Are condos a good fix and flip investment or should you steer clear instead?
Many new investors start by flipping condos because of their affordability but naturally wonder if it’s a smart decision and more funds can be earned elsewhere.
We answer your questions below.
What Are Condos?
Condos are units within a large building. Individual owners buy units and either live in them or rent them out. You own just the interior components of the unit individually. All common areas, including the unit’s exterior are commonly owned with all owners.
Condos are usually cheaper to buy, so there’s a lower barrier to entry, but are they a good idea? Condos are a good investment when all factors come together, just like with a single-family home. Ask yourself:
- Is it in a desirable location?
- Will the market rent leave you with profits?
- Is there a large enough pool of renters in the area?
- Does the association allow owners to rent the property out?
If all these factors align, then yes, rental condos can be a good idea. Just like with a single-family home, you have to find the right one.
It’s not as common for real estate investors to flip condos, which means there will be less competition from others if you decide to follow this strategy.
The reason why condo flips are less common is because of the limited space to renovate in, sometimes leading to smaller profit margins compared to investors taking on full, single-standing structures. Since many experienced house flippers won’t take on condo flips, this could be a good opportunity for new house flippers to get started with less competition going in.
Why Are Condos Harder To Sell?
If you’re looking for a fix-and-flip, know that you may have more trouble selling a condo than a single-family home.
Condos often have more financing restrictions. Buyers need a financing program that the association allows (not all associations allow FHA or VA financing, for example). Lenders have tougher restrictions on condos too.
While you’ll likely be able to sell the condo – it may not be as fast as you could sell a single-family home, especially in a fast-paced market like today’s market.
Is A One-Bedroom Or Two-Bedroom Condo A Better Idea?
Unless you live in the heart of a major city, like Chicago or New York City, a one-bedroom condo is usually the least desirable. Buyers look for condos with multiple bedrooms and would take less space over more bedrooms.
Families buying condos aren’t going to buy a one-bedroom condo, and even newly married couples avoid them for two reasons – resale value, and everyone wants an extra bedroom whether they plan to grow their family or have visitors.
The Downsides Of Investing In Condos
All investments have downsides and investing in condos is no different. Consider these downsides:
- You buy the unit with many other owners. You don’t get to choose the neighbors, just like they can’t choose you. If you end up with noisy, rowdy, or unpleasant neighbors, it could affect your ability to rent the condo out.
- HOA fees increase often. Whether the association increases fees annually, or they assess special assessments often, they are your responsibility and decrease your profits.
- The HOA handles maintenance and repairs. If you invest in an area where the HOA has faulty management, you could have upset tenants when work isn’t completed, yet you have no control over it.
- HOAs have a lot of rules. You may be limited to the number of units you can buy and rent out or even whether you can rent out one unit. The HOA controls your profits and abilities with the condo.
Condos can be a good rental investment or flip depending on your goal. Do your homework, know what the HOA allows and research the market. Not all areas do well with condo rentals – there just isn’t the demand for them.
If you do your research, find a building that allows rentals, and rent in a desirable area, though, you could make serious profits and start your real estate investment journey sooner than you thought possible thanks to the lower condo prices.