Reading Time: 4 minutes, 46 seconds
When it comes time to become homeowners, many buyers confront this question: is it better to invest in a condo in the inner city core, or to buy a larger home further out of town? Both options have advantages and disadvantages, all which need to be considered before making a final decision.
Here are the pros and cons of buying a condo:
1. Location and lifestyle
Condominiums are usually built in popular and thriving areas; up-and-coming neighbourhoods, business districts, Downtown cores or around major universities. The research that condo developers put into choosing a “safe” spot – one that be easy to market once the project is built- will eventually benefit the buyers when and if they decide to rent out or re-sell their units. Living in the inner city may not appeal to all, but it presents several major advantages such as proximity to work or school, access to amenities, cultural events, and recreational activities.
2. Affordable Price
In many real estate markets, price might be a deciding factor in purchasing a condominium over other types of real estate. For example in Montreal, buyers with a budget of $300,000 would have many suitable 2 bedroom condos to choose from, but would be hard-pressed to find a decent single family home at that price point. However, real estate buyers should also factor in hidden costs as well as additional monthly fees and taxes before using price as a deciding factor.
3. Low Maintenance
Condominium maintenance is managed through a condo association, and so individual owners are not directly responsible for performing maintenance on the building, common areas or grounds. This is a major perk for many buyers, since it frees up time for other pursuits, and implies a stress-free approach to risk. Unlike single family house owners, condo owners will never have to cough up $20,000 at once for a new roof, or $10,000 for new floors. Instead, smaller payments are put aside each month towards the condo’s maintenance fund, which collectively covers wear-and-tear as well as unexpected damages.
4. Rental Investment and Passive Income
While condominium units tend to appreciate more slowly than single-family homes, many investors favour condo units because it’s easier to capitalize on their rental potential. Units in the inner city tend to be more in-demand by tenants; they can be rented out short-term during the summer on Airbnb or as part of a rental program, or they can be rented out semi or fully furnished to professionals, young families or students. Single family homes in the suburbs appeal to long term tenants, but these investments require a higher level of maintenance and will rarely produce a positive cash flow.
1. Higher Monthly Fees
As you might imagine, that pool, fitness center, security system, and maintenance crew all cost money. And, that money is paid by you. Buyers of condominiums essentially become business partners in a residential community, paying monthly fees towards the upkeep of the property as well as to a security fund against potential damages. When shopping for a condo, be sure look into two things: how much condo association fees cost per month, and how the funds have been managed in the past three years. If having a pool, elevator or rooftop terrace in your building is not essential to you, you could look for buildings with fewer amenities and lower condo fees.
2. Your home…not your rules!
While a single family home affords you the freedom of doing as you wish within your own four walls, condominium ownership has stricter regulations to protect the overall stability and wellbeing of the entire residential community. Before signing on the dotted line, have a look through the association rules to determine whether they match your needs and lifestyle. Do you have a dog? Some condo projects have limitations on pets. Do you plan on travelling often? Check that there are no rules against short term sub-leasing.
3. Slow Appreciation
Condominiums tend to appreciate at a much slower rate than single-family homes do. This is primarily because you don’t own any land, which is the biggest driver for appreciation. Instead, you only own the living space. If you’re hoping to profit from the buy and hold strategy, the most you can do is to look for condos in up-and-coming areas rather than already established ones.
4. Lack of Privacy
Buying into a condo project means buying into the community as well. You’ll have neighbours on the other side of your walls, and will probably encounter them in the elevators or grounds at all hours of day and night. While some buyers may see this is an opportunity to make new friends and network, others may prefer the peace and quiet of a fenced-in yard.
Overall, whether you are suited for condo homeownership depends a lot on your lifestyle and your adversity to risk. If you decide to opt for a condo, here are 5 golden rules you should keep in mind during your home-hunting process:
• Location, location, location! Pick a unit that is close to public transportation and the city core, in case you choose to rent it out or sell it in the future.
• Make sure you can afford the monthly carrying costs- don’t overlook the association fees!
• Do your background research on the developer as well as the project’s history of managing its reserve funds.
• Look at the surrounding urban development plans for the coming years.
• Buy a unit with a garage or parking spot, it’ll help the eventual resale. If you don’t drive, you can rent it out at a monthly fee.