Is Buying a Condo a Good Investment?

The pros and cons of purchasing a condo in Austin

Condominium living is growing in popularity due to its relative affordability and relaxed lifestyle it offers. Condo living eliminates much of the exterior maintenance and heavy yard work. And, since most condos are in metropolitan areas, residents enjoy easy access to entertainment, shopping, bars, and eateries.

The American dream of owning a home is alive and well, as nearly 66% of Americans owned a home in 2022. In the same year, 27% of residents lived in a condo or homeowners association (HOA) property. With over 351,000 HOAs in the U.S., as recently as 2019, these communities accounted for nearly 75% of home sales. The monthly HOA fees condo owners pay adds up to over $280 billion annually for the national economy. Still, the question remains, "Is buying a condo a good investment?"

Reviewing the condo market in Austin

Throughout Texas, citizens and businesses generally accept the term "homeowners association" or HOA. However, Texas law uses the term "property owners association" to define associations with members consisting of condominium owners and a governing board of directors. What’s more, property owner associations may fall under an incorporated or unincorporated category. It’s also important to note that most property owners’ associations are usually formed as nonprofit corporations.

Expenses for maintaining a condo

Typically, a condominium will cost less than a single-family home in the same geographic area and with similar square footage. However, before purchasing a condo, it's essential to understand the costs beyond the mortgage payment. Understanding that laws and rules differ substantially between states and HOA organizations is vital.

HOA fees

HOA fees typically cover utilities, exterior maintenance, landscaping, and community amenities. A board made up of residents determines the fee for each condo. Most monthly fees range from about $100 to $1,000. Square footage, location, and the extravagance of the amenities determine the HOA fee. Costs tend to rise yearly, and if significant expenses such as an elevator or furnace need replacing, the HOA fee may increase more than usual.

Special assessment fees

Some HOAs will charge their residents a one-time fee for emergency expenses, such as a new roof or a parking lot that needs repaving. This special assessment fee is in addition to the regular monthly fee.

Condo insurance

The condo insurance rate covers possessions, interior walls, and damage caused by theft, fire, and vandalism. Often, the monthly HOA fee includes the condo insurance. Many HOAs also require residents to carry personal liability insurance for injuries that may occur in their homes.

What you should know before buying a condo

When deciding if buying a condo is a good investment, buyers should know that obtaining an HOA mortgage may present more challenges than financing a single-family home. You will typically pay a slightly higher interest rate to get a mortgage for a condominium. Additionally, the buyer and HOA must qualify for the mortgage. When purchasing a condo, whether for investment purposes or to use as a residence, it's essential to keep the following considerations in mind:

• Amenities: Consider what types of perks you need for your lifestyle. If a fitness center and pool make it possible to cancel your gym membership, it may more than makeup for the higher HOA fee. Other popular amenities include community and game rooms, tennis courts, and pet spa facilities.
  
  
• Location: It's ideal to buy a condo in an established neighborhood. But keep an eye out for developing areas as well. Focus on the area's current and potential attractions and amenities complementing your lifestyle.
  
  
• Walkability: The ability to walk to a grocery store, restaurant, and services such as medical clinics, banks, and libraries represents a highly sought-after feature when buying or renting a residence. Not only does it promote a healthy lifestyle, but it also minimizes wear and tear on your vehicle. 
  
  
• Maintenance reviews: Review sites for larger condo buildings to see what the residents say about the management and maintenance staff.
  
  
• HOA fees and building conditions: Review the HOA fees to see what they cover. For example, if you're purchasing a condo in a state with frigid winters, does the HOA fee include heat? For older buildings, look at how recently they completed renovations. How up-to-date is the HVAC system? When did they last replace the roof?

Purchasing a condo as an investment

Real estate investors often lean toward purchasing condos because of the typically lower cost, and the HOA fees simplify maintenance and other considerations, such as insurance. Adversely, the HOA board establishes the fees and rules of the HOA. In some cases, the condo owners get to vote on nonessential improvements. Investors purchasing multiple units may want to consider running for the board to gain more participation in the decision-making process.

When considering a condo as an investment, you need to look at the direction of your investment:

• Do you plan to live in the condo and sell it for profit? You will want to time the sale according to the market and appreciation of the condo.
  
  
• Does your investment plan involve renting the condo out long-term? Or do you plan to use management companies such as Airbnb or VRBO to rent it out short term?
  
  
• Are you purchasing the condo as a vacation spot, possibly to use it as a future retirement home? You may want to rent it out short-term when you're not using it.
  
  

Whatever your investment intentions entail, it's vital to thoroughly research the HOA rules and guidelines to ensure you're within the criteria and review the procedures you'll need to follow to rent the condo, either long or short-term.

Preparing your condo for sale

When you decide to sell your condo, make sure to follow the steps below:

1. Review the HOA rules and guidelines. 
   
   
2. Hire a real estate agent with experience in condominium sales. A professional agent will research the local market and review the properties that have recently been sold in your neighborhood. They will also advise you on the best time to sell your condo.
   
   
3. Staging your home may significantly increase your profits. Make sure all the rooms demonstrate a defined and useful purpose. Remove clutter and personal items such as photographs.
   
   
4. Focus on marketing that highlights the building amenities and local attractions.
   
   

For many homebuyers, condos provide an ideal lifestyle with low maintenance, convenience, and affordability. They also represent an excellent opportunity for those who invest wisely and understand the condo market, making buying a condo a good investment.

We can help

If you live or plan to relocate to Austin, Texas, and wondering if buying a condo is a good investment, reach out to Prospect Real Estate today.