Are condos a bad investment?

Question

Hello BP! I am a new investor and I am in the process of saving money for my first investment property. Condos in the are I am looking are less expensive than single family home (even with the same square footage) but I noticed they do not appreciate as much over time. I was wondering if someone could explain to me why that is. I am fine with saving more money to purchase a better property in the area, but with the money spent for a down payment on a SFH or MFH I could buy 2 condos.  Any advice would be appreciated and thank you.

Wilson Lau · Answer

To piggyback on what @Carlos Ptriawan mention here, check out these properties' sales history:

https://www.redfin.com/CA/Cupertino/22483-McClellan-Rd-95014...

https://www.redfin.com/CA/Los-Gatos/16935-Roberts-Rd-95032/h...

https://www.redfin.com/CA/Saratoga/19546-Vineyard-Ln-95070/h...

In the right market, right location, and right architecture (Some condos are built like townhouses/ SFHs), this is what you get. However, if your objective is to find something reasonably priced with the goal of investing, condos are generally not the first choice.

Ned J. · Answer

Condo's also come with HOA's and those can be a HUGE nightmare.

Carlos Ptriawan · Answer

in summary all condo/HOA are bad investment except :- if they are located in prestigious location and/or neighborhood- they are relatively new so maintenance cost is low and predictable- they located in the market where DOM for condo is less than 10- they are located in the best school district- or they're located for resort zone/holiday zone.

Carlos Ptriawan · Answer

yeah, and to put into context for people that don't know. Area especially Cupertino is one of the best school district where every engineer in bay area want to put their children into. There're lot of family that rather renting as long as their kid is within this school district.

and here's another story, this is a condo that was 1.2 mil in 2016 and recently sold for 600k-ish in best location in the world (for the homeless lol) :https://www.redfin.com/CA/San-Francisco/1075-Market-St-94103...

so yea, school district and local gov. has huge impact of condo appreciation (and de-appreciation) lol

also if on want sample of condo complex that the HOA is simply broken and the homeowner is basically wiped out, there're bunch of them in Concord.

Carlos Ptriawan · Answer

Also condo in very expensive area has very different trajectory compare to condo in middle class area. Everyone want to live in class A++ neighborhood and sometimes the only way to go there is by buying condo. So sometimes we see interesting problem where area with avg SF is $1.5 and condo is 500-900k ; but in lower class area where avg SF is $900k but condo is priced 500-700k, in this comparison condo is good investment at higher expensive neighborhood.

Alecia Loveless · Answer

@Samantha Zebitsch Condos in my area have never appreciated as much as SFH. For years you could buy a lovely condo with a 3/2 upstairs and a 2/1 downstairs for about $200K which would have a mortgage of around $1100. But the association fees were $900. Then the condos needed new roofs so there was an assessment of $400 for 10 years. But 2 years in they discovered the roofer was shady and the roofs were all bad and had to be done so now there had to be a new assessment of $600. Then the association passed a rule that you couldn’t rent out the downstairs as an owner, so you had to live there in the basement if you wanted to rent part of your unit and could only rent the upstairs. So now the majority of the units had mortgages of $1100, association fees of $900, assessments of $1000 and weren’t able to be rented because most of the owners didn’t want to live in the basement.

This is why I don’t like condos. You lose ALL control.

Theresa Harris · Answer

A house will appreciate more than a condo.  Houses come with their own land which condos don't.

Condos are less expensive to buy, but you have to also remember there are condo fees that depending on the unit can add to the monthly payment.  You can also be hit with special levies or increases in the fees as well as the condo board changing rules regarding rentals.

Three years ago when I was looking at a higher end condo vs a single family home, the comparables in terms of rent were a condo for about $240K with monthly fees of $250 (I think) vs a single family home for $270K.  Both we thought would rent for the same price.  It cost me more for a down payment, but I went with the house because the costs at the end of the day were going to be the same and either the tenant paid the condo fees or a slightly larger mortgage. Insurance costs are also a bit different, but at the end of the day, the home was a better option.

Yuanyuan Zhang · Answer

It really depends on the location and school district. I recently helped my client to buy a condo in a great location. It is a very good investment. Make sure the condo fee is not too high.

Becca F. · Answer

@Samantha Zebitsch

I agree with the above comments that usually SFHs appreciate more and you have more control over it. HOAs can also enact rules restricting rentals - many of them don't allow any type of short-term rentals (if you were considering AirBnb).

I sold a condo. This went against my "never sell a property in the San Francisco Bay Area" line of thought. The increasing HOA fees over 2.5 years from $445 a month to $605 and there was a special $1600 assessment to repair an old elevator, not replace it. The HOA finances were badly managed and the homeowners would argue with the HOA board members. There was increasing crime in that area. Location wise, it was close to the freeway and could walk to stores and restaurants but the negative factors outweighed the positive.

Logan Rex · Answer

You don’t happen to be familiar with the Southern Nevada area? I’m looking to purchase a condo on a golf course in Green Valley Ranch but I’m getting mixed feelings. People are telling me not to buy a condo but I will be living in it for about 2 years and hoping to rent after that. I have  a SFH I plan to rent out while I live in the condo but I’m just having a hard time finding some clarity.

Are condos a bad investment?

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