Are Condos a Good Investment? 8 Reasons to Invest in a Condo

Where to live is not the only thing to think about when buying property. It's also essential to consider what type of property is best. A single-family home works well for many as it offers ample space and the flexibility to design and style it as the owner wishes. Yet, there are a few compelling reasons to consider condos for sale instead. Condos are located in a shared building, but they still allow for full ownership. 

Are Condos a Good Investment? 5 Considerations Before You Buy

• Market Trends: Understanding the current real estate market trends in the area where the condo is located is crucial for determining its investment potential.
• Location: The location of the condo, including proximity to amenities, transportation, and future development plans, significantly affects its value and desirability.
• Condo Fees: Being aware of the monthly condo association fees and what they cover is essential, as these can impact the overall return on investment.
• Rental Demand: Evaluating the rental demand and potential rental income in the area can help determine if the condo will generate sufficient cash flow.
• Resale Value: Considering the historical appreciation rates and potential for future resale value is important for assessing long-term investment returns.

Condos Are Great First Investments

Condos can be an exciting point of entry to the real estate world for first-time home investors. Unlike apartments, condo ownership builds equity. Additionally, they tend to have a lower purchase price than homes in similar locations. That lower cost typically translates into a smaller mortgage and lower monthly payments. Because condos are cheaper than most homes, they have smaller floor plans and require a lower down payment. That may mean getting into a home sooner and keeping debt-to-income ratios lower. 

From property taxes to utility bills, condos are cheaper than single-family homes in almost every instance. Spending less reduces the risks of financial struggle. That lower monthly payment may make it possible to save up for other investments or to create an emergency savings account. To make the most of their investment, buyers should be crystal clear about their condo ownership rights. 

Operating Your Condo As a Rental Property

Buying a condo and operating it as a rental property can be a good investment if the condo owner does the necessary research first. The potential income from a rental condo can vary widely based on several factors, including the property's location, size, and condition, as well as the local rental market and demand. Here are some key considerations:

• Location: Condos Calgary, Toronto, and Vancouver typically command higher rental rates compared to smaller towns or less desirable locations. For instance, a one-bedroom condo in downtown Toronto could rent for CAD 2,000 to CAD 3,000 per month, while a similar unit in a smaller city might only rent for CAD 1,000 to CAD 1,500.

• Size and Condition: Larger units with more bedrooms and modern amenities can command higher rents. A two-bedroom condo in good condition in a prime location could rent for CAD 2,500 to CAD 4,000 per month. Whether you choose a high-rise or low-rise condo can also make a difference.

• Market Demand: Rental demand fluctuates with economic conditions, population growth, and local job markets. High-demand areas with low vacancy rates allow for higher rental income.

• Operating Costs: It's essential to account for costs such as property taxes, maintenance fees, condo association fees, insurance, property management fees, and any mortgage payments. These costs should be found in the condo's estoppel certificate, provided by the condo board, before you buy.

• Regulatory Environment: Local regulations, including rent control laws and short-term rental restrictions, can affect potential income. For example, some cities have caps on rent increases or restrictions on Airbnb-type rentals.

Assuming an average scenario in a high-demand urban area, a condo owner might net around CAD 1,000 to CAD 2,000 per month after expenses. However, thorough financial planning and market analysis are crucial to accurately estimate potential earnings and ensure profitability.

Condos Can Also Be Great Short-Term Rentals

Individuals who purchase condos are buying an investment. Down the road, instead of selling it, it may be possible to use that investment to create a rental income. Condos are a great short-term rental opportunity, for example. As long as the community's rules allow for it, it's possible to convert a primary residence into a rental for those who may be visiting the city for a few days or weeks. This creates a nice passive income for the condo owner, who can rent it out as often as they need as long as they comply with tax considerations for vacation rental owners.

The location makes a big difference. Those who buy a condo in an area that tourists frequent are likely to see a consistent level of interest. Downtown condos or those close to area attractions do well. However, a condo in a suburb or another area can still be desirable for those visiting family, coming into the area for medical care, or those who need a place to stay while work is done at their home.

Do Condos Appreciate in Value?

Yes, condos generally appreciate in value in Canada, though typically at a slower rate compared to detached single-family homes. Condos tend to increase in value over time due to their affordability, making them attractive to first-time buyers and investors. The appreciation rate for condos varies depending on factors such as location, market trends, and the specific property. Well-located condos in desirable areas often see higher appreciation rates. At their peak, condos appreciate by about 3-5% per year, though this can vary significantly based on local market conditions.

Positive factors impacting condo appreciation include amenities, security features, and community living aspects. However, it's important to consider condo fees and potential special assessments, which can affect the overall investment value. Holding onto a condo for at least seven years is generally recommended to overcome transaction costs and see meaningful appreciation. Thorough research into the specific market, building, and unit is crucial before making a purchase decision, as location, property management, and market conditions play significant roles in a condo's appreciation potential.

Condos Have Awesome Amenities

When you buy a condo, you don't have to live in a penthouse to enjoy luxury perks. That includes in-unit amenities, such as granite countertops in gourmet kitchens. That may also include walk-in closets, luxurious bathrooms, and top-of-the-line appliances. Of course, not all properties offer this, but newer condos are typically likely to offer upscale amenities.

Other amenities are those on the property that all (or most) unit owners have access to using as they wish. This may include onsite fitness centers or gyms perfect for daily workouts or yoga sessions. In a high-rise condo development, a rooftop lounge may be the ideal place to entertain. Many condo owners appreciate a location with a pool, perhaps with a sundeck, kids' area, or spa. Some also feature a community clubhouse for hosting events and gatherings, both for the community and private events.

Other amenities that may be present include media rooms, community gardens, and playgrounds. They may feature firepits and grilling areas. Some may also offer programs such as sponsored fitness programs or yoga sessions.

It's essential to know these are not free. Most condos have an HOA or COA fee that the unit owners pay each month or periodically to help cover the cost of these amenities. Still, paying out-of-pocket for most of these amenities in a single-family home can be challenging.

Condos Have Fewer Maintenance Responsibilities

Maintenance is another big reason to consider a condo instead of a single-family home for some people. All properties require maintenance, but condo owners bear a lighter burden than their single-family counterparts. In most condo communities, owners are responsible for all maintenance needed within their unit. That may include updates to appliances, flooring, and bathrooms.

The difference is that condo owners typically aren't responsible for independently funding or scheduling maintenance on common-area items. For example, the condo association typically handles snow removal and grass cutting. It may also maintain shared spaces, such as walkways and parking lots. Depending on the terms of the agreement, the condo association may also be responsible for roofs, plumbing, and electrical systems in shared spaces. All of those amenities are also maintained by the association.

The condo owners still pay for this work, but it is typically through a fixed monthly or periodic payment, making it easier to plan for maintenance. That can help to make maintaining the property much more manageable.

Condos Come With a Built-In Community

When you buy a condo, you are buying into a community. This is because there is less space between condos, so people are more likely to interact with their neighbours. Condo communities also typically have common areas, such as pools and gyms, that residents can use. Community events like holiday get-togethers are also fairly common occurrences in condo communities. This helps build a sense of community among the residents.

If you're the kind of person who likes to get to know your neighbours, living in a condo will give you plenty of opportunities to do just that. Meanwhile, people who want their privacy may feel more at home in a single-family home where there is a clear separation between properties.

How Does the Condo Association Affect Your Investment?

The condo association plays a significant role in determining whether a condo will be a good investment. Here are some key ways in which the condo association can impact your investment:

• Financial Health: The financial stability of the condo association is crucial. A well-managed association with a healthy reserve fund ensures that there are sufficient funds for maintenance and unexpected repairs without imposing large special assessments on owners. Poor financial management can lead to higher fees and surprise expenses, negatively impacting your investment returns.
• Maintenance and Upkeep: A proactive and efficient condo association ensures that the property is well-maintained, which helps in preserving and potentially increasing property values. Neglected maintenance can lead to a decline in the property’s condition and value.
• Rules and Regulations: The rules set by the condo association can affect the desirability of the condo. For example, restrictions on rentals can limit your ability to generate rental income, while rules that maintain the quality and uniformity of the community can enhance property values.
• Amenities and Services: The availability and quality of amenities provided by the condo community, such as gyms, pools, and security services, can make the condo more attractive to buyers and renters, potentially increasing its value and rental income.
• Management and Governance: The effectiveness of the condo association's management and governance practices impacts overall satisfaction among residents. Transparent, fair, and efficient management fosters a positive community atmosphere, which can enhance property values.
• Special Assessments: The frequency and size of special assessments can significantly affect your investment. Frequent large assessments indicate poor financial planning and can be a financial burden, reducing the attractiveness of the condo to potential buyers and renters.
• Overall, a well-managed and financially sound condo association contributes positively to the value and desirability of the condo, making it a better investment. Conversely, a poorly managed association can lead to higher costs, deteriorating property conditions, and decreased property values, making the investment less attractive.

What Does It Mean to Invest in Pre-Construction Condos?

Investing in pre-construction real estate involves purchasing a condominium unit before it is built or during its construction phase. Investors typically buy these units directly from the developer at a predetermined price. This type of investment can offer several advantages, such as lower initial prices compared to completed units, the potential for property value appreciation during the construction period, and the ability to customize the unit's finishes and features. However, it also comes with risks like construction delays, market volatility, and changes in financing terms. Overall, it requires careful evaluation of the developer’s track record, the location's future potential, and current real estate market conditions.

Condo Investing: Is It Right For You?

Condos can be fantastic investments as long as you do your homework. What's important to keep in mind is that each condo association sets its own rules and requirements. More so, not every community is the same in what they offer. For that reason, those in the market for a condo should compare numerous locations and weigh the pros and cons of condos. There could be numerous options to choose from in the neighbourhood or the city depending on the location.