Is buying a condo a good investment?

Condos can be an attractive housing option. They often require less maintenance, may cost considerably less than a single-family home and many offer convenient amenities like pools and fitness centers. This can make them especially attractive for people who want to stop renting.

However, buying a condo can be very different from buying a house. Lenders may have different criteria for a loan on a condo. Before you buy, you'll want to understand the differences between buying a house and buying a condominium and how to get the most out of your investment.

What makes a condo, a condo?

Condos and apartments may look similar from the outside, but the difference comes down to ownership:

• Apartments: One person owns the entire apartment building, then rents out the individual spaces
• Condos: Individual condominium units are privately owned within a larger building or community and the unit owner has a percentage of ownership interest in the common elements such as amenities, exterior of the building and grounds

Condos can be single units in a building, multi-story townhouses or stand-alone. Condo owners will pay a monthly fee to the homeowners association (HOA), sometimes called HOA dues. These dues may go towards the taxes, insurance, general upkeep and maintenance of any amenities and the exterior of the building and the grounds.

Pros and cons of buying a condo

The benefits of condo ownership

Here are a few benefits of owning a condo:

• The price tag is often lower than a house. According to the National Association of Realtors, the median sales price of a condo was $337,900 in March 2024, while the median sales price of a single-family house was $397,200. That's a big difference in price, especially if you’re saving up for a large down payment..
• They require less exterior maintenance. The management company will typically handle all the exterior maintenance of your condo. That means you won't need to worry about roofing, siding or maintaining the gardens unless your condo has a private yard. That can reduce the amount of time you spend on exterior maintenance.
• Many condos offer community amenities. You might enjoy amenities like a business center, swimming pool, fitness center or picnic area. It's all maintained by the HOA or management company, so you just get to enjoy it.

The potential pitfalls of buying a condo

While condos offer many benefits, here are a few potential drawbacks:

• You only own what's inside the walls. You may not be able to make the final decision in what happens to the outside of your property. From exterior paint colors to the plants to hanging a flag, it's governed by the HOA bylaws and decisions are made by the HOA members.
• HOA rules and regulations may not fit your needs. The HOA governing documents, bylaws and rules and regulations should be reviewed carefully to be sure you understand them prior to purchase. 
• You may not be able to rent your property later on. If you’re buying a condo with the intention of renting it out at some point, make sure you read the community rules first. Some communities restrict the length of time you can rent the unit and the ratio of rentals, so you might not have that option in the future.

How buying a condo differs from buying a house

There may be a few more steps in the lending process when you buy a condo. Not only will your lender look at your finances and the value of the condo, they'll also look at the condo's financial stability and project characteristics. The management of the community may impact the value and marketability of the condo now and in the future, so lenders will want to ensure that the community is well-managed and financially sound before they approve your loan.

Another thing to be aware of when buying a condo is that some are non-warrantable, meaning the condo project does not meet Fannie Mae, Freddie Mac, FHA or VA guidelines. This may reduce the range of loans you’re eligible for. Non-warrantable condos may be harder to sell or refinance later on, and you may end up paying more in interest. Your real estate agent or Home Lending Advisor should be able to help you determine whether a condo is non-warrantable or not.

Is a condo a good investment?

Your needs and budget will determine whether a condo is a good investment. However, here are some things to consider when making your decision.

Understanding the resale value of a condo

Some people believe that condos are slow to appreciate in value, especially when compared to single-family homes, but that's not always true. Condos may appreciate faster in busy urban areas than they do in suburban areas where single-family homes tend to be favored.

When it comes to resale value for your condo, there are two things that are important: the location and how the condo is managed. If the condo is in a busy urban area, near a tourist hotspot, or within an amenities-packed community, it will likely appreciate faster. If it's well-managed, that may help your resale value later on, too.

How to get the most out of your condo investment

• Purchase a condo in a community that's well-managed and has a variety of community amenities. This may help with your resale value later on and make the property more attractive to potential buyers. You'll enjoy it more while you live there, too.
• If you’re buying a condo as an investment property to rent, make sure there are more owners than renters in the community. Owner-occupied condos tend to be better maintained as they have a bigger stake in the property's value.

3 questions to consider before buying a condo

1. What condition is the condo and the community in?

You'll want to avoid condominiums that aren’t well maintained. While they may be a less expensive option upfront, the unit owners will have to contribute to make repairs and replacements. Instead, look for condos that are in good condition, inside and out and an HOA that is setting aside reserves for repairs and replacements. These are more likely to appreciate in value, which is good whether you plan on living there for a long time or want to sell it later on.

You'll want to take a thorough tour of all the community areas to check out their condition and see if they’re well maintained. Appearance isn't everything, though. Make sure you check out the management company, when applicable, too, either through your own research or from your appraisal and inspection reports.

2. What is the HOA like?

A Homeowners Association will set and enforce the rules for the community. While HOAs are great for protecting property values, some can be quite strict. They may have rules on where you can park a bike, how you can decorate for holidays or what you can do with your front door. Make sure you understand the bylaws, rules and regulations.

3. What is the location like?

Location always matters in real estate, but it might be even more important when it comes to buying a condo. You'll want to pick a condo in an area near amenities like grocery stores, coffee shops and restaurants. Condos in urban areas perform better in the market, but condos with easy access to public transportation are also appealing. If it's in a popular neighborhood, then it's more likely to be a good investment later on.

Condos can be a more affordable, low-maintenance option for homeowners. They can be good first-time purchases to help get you onto the property ladder for less. They’re also great for those looking to downsize in their retirement years. While the mortgage process may vary slightly from that of a single-family home, many lenders are lifting restrictions on condo loans making it easier to get financing on a great property. And the condo buying process can be even easier when you get preapproved with a Home Lending Advisor today.