Newly-Built Condos in Cities Make Perfect Rentals—Here’s Why

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https://www.biggerpockets.com/blog/newly-built-condos-make-great-rental-properties-in-cities

When discussing rental properties, it’s common for people to refer to multifamily residences. How many times have you heard someone say something like, “I have 20 units under management,” most of which are probably spread across just a few buildings?

This investment approach is logical from an economic standpoint. Having four units under one roof versus just one, four rents instead of one—you get the point. 

No one ever talks about condos as a viable investment option in real estate. Indeed, there’s a negative connotation around the word “condo.” Tell someone you bought a condo as an investment, and you can pretty much guarantee that someone in the BiggerPockets Forums will scoff at you. You’ll hear all about how terrible homeowners associations (HOAs) are and how condos appreciate slower than single-family homes. 

Perhaps the biggest affront and final blow to your reputation would be sharing that you bought a newer condo. No sweat equity? That’s blasphemous—how will you ever reach financial freedom? 

It’s not sexy to say that you have one unit, or that you bought a newly built property without renovating it yourself, or that you bought your deal on the MLS. 

So what’s the punchline?

Condos are the most overlooked real estate investment that anyone can access. That means less competition. For busy investors working a 9-5 or new investors trying to get into the market, this is your distinct advantage.

Here, we’ll focus on newly built condos in cities, which is where the best value lies. Keep reading to learn more about the advantages of this forgotten asset class.

Better Location

“Location, location, location” is everyone’s favorite mantra when it comes to real estate.

There’s a higher likelihood that you find a condo in a prime city location than a single-family property. To maximize on space, developers build up, not out. This makes condos more abundant in cities. It also means you can find them in ideal locations for rental properties. 

There are a variety of ways to capitalize on location as a condo investor. Here are just a few.

Find the next trendy neighborhood

Want to capitalize on the changes happening in your city? Investing in newer condos in trendy or up-and-coming neighborhoods can offer significant potential for appreciation and rental income growth. These areas often attract young professionals and creative types seeking vibrant communities and diverse cultural experiences.

Make sure there’s access to transportation and major highways

Being situated near public transportation hubs or major highways enhances the accessibility of newer condos. As such, these are ideal for renters who rely on commuting or prefer the convenience of city living without the hassle of owning a car.

Play up the convenience and comfort angle

Put yourself in your renter’s shoes: People live in cities to be closer to work or for convenience. Within walking distance, residents will have easy access to restaurants, shopping centers, entertainment venues, employment opportunities, and transportation.

In today’s fast-paced world, renters value convenience and comfort above all else. Newer-built condos often offer features such as concierge services, secure parking, and modern finishes that cater to these preferences, making them highly desirable rental options.

Strong Rental Demand

A bigger population equals more potential renters. And in a city, there’s no shortage of people. This means a constant demand for housing because of the sheer volume of renters looking at any given time. Here’s how to take advantage of this.

Stand out 

A newer unit will stand out compared to the competition. There’s a reason luxury vehicles sell for more than used cars. 

Unlike older buildings, newer condos often boast state-of-the-art features. These appeal to contemporary lifestyles and lower-maintenance living. These amenities also attract high-quality renters willing to pay a premium for added comfort, convenience, and a sense of security.

Pay attention to demographics

Demographics also contribute to strong rental demand in cities. As younger generations delay homeownership and prioritize mobility and flexibility, demand for rental properties, particularly in urban centers, is expected to remain robust. 

Millennials are the first generation that’s more likely to rent than own a home. It’s also the largest population demographic. Millennials, along with Gen Z, tend to prefer the flexibility and convenience of renting over homeownership. Newer-build condos offer hassle-free living experiences with professional property management services and maintenance included, making them an attractive option for discerning renters.

Investing in newer-build condos allows landlords to capitalize on this demographic shift and generate steady rental income.

Any rental strategy can work

Condos in urban centers can be excellent sources of rental income because you’re not pigeonholed into one investment strategy. Based on your preferences and real estate investment strategy, you can garner interest from renters in any of these categories:

• Short-term rentals: Short-term rentals only work when there’s a draw to them. Cities are full of attractions. Condos’ prime locations in urban centers make them attractive to tourists and business travelers. When in town for only a short while, time is precious, which means limiting commutes. These people seek location convenience that puts them close to attractions, restaurants, and the like.
• You can also cash in on seasonality. Cities host events such as festivals, major conferences, sporting events, and other options, depending on what they are known for. The high demand for short-term rentals in urban areas can result in lucrative rental income, especially during peak tourist seasons or major events.
• Medium-term rentals: Urban centers often attract individuals relocating for work, internships, or temporary assignments, creating a steady demand for medium-term rental properties. 
• Let’s use traveling nurses as an example. All major cities have hospitals. A condo near a major hospital might attract nurses who want to work, get home quickly to rest, and have things to do during downtime. If they’re receiving a housing stipend or credit, why wouldn’t they pay more for proximity to work?
• Long-term rentals: As discussed, there are more people in cities, meaning a greater pool of potential applicants. By coupling this with convenience and other local amenities, you will further increase your chances of getting top-dollar rent in your area.
• Rent appreciation is something else to consider. Assuming the property is in good condition and in a great location, demand will remain constant. Over time, you can expect rents to increase naturally due to inflation and other factors. If you buy a condo in an up-and-coming area, you may also see rent and property value increases as the neighborhood improves.

Cheaper to Purchase than Other Forms of Housing

You may feel discouraged if certain property types feel out of reach. Generally speaking, condos are cheaper than single-family and multifamily houses. In high-demand, expensive markets, the gap only increases further. For these groups, a condo makes sense as an investment. 

Here’s a story about how this played out for a real estate agent in Boston helping two house-hacking couples: 

“Both were interested in the same area of the city at similar price points. One couple wanted a value-add house, while the other wanted a newly renovated condo. The couple who wants a house put in several offers—none of which were accepted. Every property had a bidding war with 15 or more offers that were far over asking. The condo couple put in one offer at the unit’s asking price. It was accepted.”

Note that the price of a new condo was equivalent to a fixer-upper house. To get the fixer-upper into tip-top shape would require money for renovations. Even after the updates, it would demand rent similar to the condo, assuming an equal amount of square footage, bedrooms, and bathrooms. 

While the resale value on the single-family will likely be higher, as a rental property the condo is a better deal in Boston. House hackers in other pricey markets are likely experiencing something similar.

Lower Maintenance, in Every Sense of the Word

For new investors, newer condos are a great starting point. There’s less maintenance, so it’s almost like having real estate investor training wheels. 

Here are some examples: 

• Lower maintenance and repair expenses: With newer condos, landlords can benefit from lower maintenance and repair expenses. Since everything is new, these properties are less likely to experience issues associated with aging infrastructure and outdated systems. This translates into fewer headaches and more money saved.
• Energy efficiency: New appliances are energy efficient. Newer condos are designed to save water and energy. This results in lower utility bills for landlords (if you pay them) or for your renters.
• Built-in capital expenditure savings: Every investor is taught to have a rainy day fund to save for major expenses, called CapEx or capital expenditures. These are things like HVAC and the roof. Depending on the HOA, the budget might account for this as part of your monthly payment. Even if it doesn’t, you still only need to pay a fraction of the cost to replace common-area expenses. Furthermore, you also have a long time to start saving for larger maintenance issues simply because the building is newer.
• Low-maintenance renters: When you rent out a newer unit, there’s not much for someone to complain about. People also often respect new things and are careful to treat the condo like it’s their own home. Make sure you screen your tenants accordingly, though!

Final Thoughts

Newly built condos in urban areas are often overlooked despite their compelling advantages. For beginners and investors with busy schedules, this could be a way to zig when others zag.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.