Investment opportunities: Why condo investing is your best bet

Investment opportunities: why condo investment is your best bet

There are lot of ways to invest in the real estate market, from houses and apartments through to commercial and industrial spaces. Before you make a deal, it's important to compare your options and make an educated decision that meets your budget and investment goals.

Condominiums are a popular and profitable real estate investment alternative, with the rise of condo living providing a wealth of opportunities for clever investors. Seniors demand for amenities, the increasing urbanization, and increased city rents have all drawn sophisticated investors to the possibility of investing in condos.

While there are challenges involved with condo investments, and you need to do your homework, the rising popularity and unique ownership arrangement of condos can prove extremely advantageous. Let's take a detailed look at the benefits and challenges of a condo investment so that you can make the right decision for your property portfolio.

What is a condo?

When most people think of a condo, they imagine an inner-city apartment located in a medium or high-rise building. While this vision is correct in many situations, it’s not a completely accurate portrayal. Contrary to popular belief, a condominium is defined as a particular ownership arrangement rather than a type of dwelling. This ownership arrangement can be applied to any type of dwelling, from standard apartments in multistory buildings through to townhouses, duplexes, and even detached houses.

A condo is a privately owned residence which resides in a larger building or community. Under a typical condo arrangement, the owner of the residence takes ownership of the apartment or dwelling but does not gain ownership of the external building. While a condo is very similar to an apartment in function, most apartment buildings are rented and owned by investors or company.

A condo arrangement allows people to take ownership of the apartment or dwelling along with a share of common areas and assets. While the purchase agreement does not include the external building, condo owners do have access to common building assets and amenities in exchange for monthly condo fees.

The rise of the condo market in the US

The condo market in the United States has grown in leaps and bounds over recent decades, from a small niche market through to a significant chunk of the property sector. The new development condo market continues to take a big bite out of the co-op resale market in major centers, as a growing number of people seek new lifestyle opportunities in an affordable and accessible package. Growth in this sector is coming from multiple directions, with millennials priced out of many traditional housing markets and retirees looking to downsize without making lifestyle compromises.

Condos exist across the United States, from the large urban centers of New York and Chicago through to multiple regions in the South, Midwest, Northeast, and West. According to the Community Association Institute from 2016, 21.3 percent of the US population live in common-interest communities, including homeowners associations, condominium communities, and cooperatives.

While condos only represent a small proportion of the overall housing market in the US, they provide a much needed alternative to single-family homes in heated urban markets. While the majority of condos are still holiday homes in Hawaii and Florida, more Americans than ever are choosing to live in condos on a full-time basis. This is particularly true in major urban markets that are becoming more and more unaffordable on the single-family side of the market.

Brooklyn represents the changing face of the US housing market, with new condominium developments dominating the property market and skyline of the borough throughout 2018. Condo sales and market share both soared during the third quarter, with 283 new condos sold from July through September.

This was a massive 148 percent increase from the same period last year, as new condos accounted for 31.5 percent of all condo sales. The median price of a new condo also increased substantially, with 17.5 percent growth recorded over the year to $915,000. Condo apartments, including both new dwellings and resales, accounted for 48 percent of all real estate sales in Brooklyn last year.

That said, the price point in Brooklyn for condos is certainly not indicative of nationwide condo prices. As of December 2018, the average condo price across the U.S. rested at $283,000.

The rise of the condo market in Canada

Condos are very popular in Canada, especially in busy urban markets such as Toronto and Vancouver. There are many reasons for the enduring popularity of this market segment, including downsizing trends among older residents and lifestyle considerations such as access to condo communities and central locations.

Canadians have embraced the condo lifestyle more than most, with a growing market share continuing to provide opportunities for forward-thinking investors. While new stress tests on mortgages and rising interest rates have had a negative effect on other parts of the Canadian property market, they have bolstered the strength of the condo market in some places. With large mortgages harder to access, the continued strength of the condo market is based on both affordability and lifestyle.

New condo constructions continue to grow across the country, with numbers surging by almost 30 percent to 248,000 in June 2018 according to the Canada Mortgage and Housing Corporation (CMHC). Along with millenials and retirees, more Canadian families are becoming interested in the condo lifestyle. According to the 2018 Monetary Policy Report by the Bank of Canada, condos and other multi-family constructions represent three-quarters of all new homes being built, a number that has grown from 65 percent a decade ago.

While there is growing concern about the oversupply of condos in some urban markets, a number of fundamental economic factors continue to support condo investments. Along with government policy surrounding densification, rising population growth and economic expansion will continue to create demand for the condo segment.

Overall, in Canada, the average price of a condo is about the same as the U.S., hovering around $300,000, but completely depends on your market. In Toronto, for instance, the average price hovers around $500,000, whereas in Ottawa and Montreal the price is more in the high $200,000’s.


Benefits of a condo investment

Buying a condo as an investment is very different to buying one as a home. While you still have to think about specific lifestyle factors such as location, community and amenities, you also have to analyze taxation, equity growth, rental income, condo association rules and more. Once these hurdles have been overcome, however, condos offer a number of advantages over other real estate investments. Benefits include lower purchase prices, more reliable rental income, reduced maintenance costs, and a greater opportunity to build equity in many cases.

Lower purchase price

Buying a condo can be significantly cheaper than buying a house. While the situation differs considerably from city to city and building to building, at the very least, condos provide investors with more opportunities to enter the property market at the ground level. Detached single family homes cost more to purchase than condos in the same location, especially in popular inner-city neighborhoods where detached houses can be extremely expensive.

A lower purchase price has a number of follow on benefits, not just making it possible for investors to enter the market but also expanding their options and increasing the likelihood of making the right decision.

For example, while there may only be one or two detached house options available to you at any given time, you may be able to choose between dozens of condos. With more options available to you, you're much more likely to choose the right home for your needs.

Reliable rental income

Investing in a condo can be a great way to generate reliable rental income. There are lots of factors to consider when it comes to rental demand, from the condition of the property itself through to the location and rent price.

While detached houses can also be incredibly popular in certain areas, a condo investment allows you to simplify the process by focusing on particular demographics and locations. For example, certain neighborhoods and buildings are more likely to attract people of a certain age and income bracket, which allows you to focus your marketing efforts and streamline the rental process.

It goes without saying that the rental market is much bigger for young single professionals and retired couples than for single family homes.

Building equity

There are three ways to generate funds from a real estate investment—cash flow, principal pay down, and appreciation. While the value of houses will appreciate faster than condos in many cases, according to online real estate marketing company Trulia, median condos sales in the United States increased by 38.4 percent between 2012 and 2017, with detached homes appreciating by 27.9 percent over the same time period.

How much equity you can build with a condo investment depends greatly on the location, with some cities and neighborhoods growing much faster than others. Before making an investment, it's important to analyze market trends such as historical growth rates, time on market, auction clearance rates, and anything else that will give you an insight into supply and demand.

While recent growth rates can help you to forecast future growth, it's particularly important to be aware of oversupply in the condo market.

Reduced maintenance

While condo investments provide a number of benefits over traditional family homes, perhaps the most obvious benefit is the reduced maintenance involved. This is one of the key factors that distinguishes a condo from a detached home, with condo owners not responsible for any maintenance to the exterior of the building.

While condo fees need to be paid every single month to cover costs, budgeting is much easier and there are no unexpected surprises. In contrast, people who own a detached house are responsible for all maintenance costs, which are often very expensive and ill-timed. Maintenance costs and services can vary widely, so it's crucial to do your homework before you sign a contract.

For example, while some condo fees will cover things like utilities and parking, others are strictly limited to ongoing maintenance. When researching condos, it's also important to compare the contingency fund of each building. This is the amount available to cover large and unexpected repairs that may result from natural disasters and other unforeseen circumstances.

It's also important to analyze the opportunity costs associated with your decision. For example, along with the maintenance costs associated with detached homes, you also need to account for the time you spend looking after the property. From mowing the lawns and clearing the gutters through to fixing the plumbing, an investment condo can be cheaper, less time-consuming, and ultimately less stressful.

Challenges of a condo investment

There are some challenges associated with condo investments, however, especially if you're new to the game or more accustomed to detached homes. Firstly, condo owners enjoy less freedom than other property owners, both in terms of how the dwelling is used and how much you can change it over time. While some people appreciate the control and security that a condo association provides, others may struggle with the lack of freedom.

Depending on the location and property in question, condos can also be harder to finance, rent, and sell than detached homes. Maintenance fees are another sticking point, with these monthly fees payable every single month on top of your initial investment. Even if your condo is empty or being renovated, you are still responsible for the condo fees.

This is why we suggest new condo developments. These typically have much lower condo fees, are under warranty, and will take make years before significant renovations are required. Older condos on the other hand have much higher condo fees, are no longer under warranty, and are more likely to need major fixes like roofs, windows, and siding.

While the regular fees and lack of maintenance will provide a form of security for some people, this added expense can eat into your profit margins over time. When comparing condos, it's critical to look into current fees, historical increases, and forecast fees, including their relationship to the purchase price.  

Finding the perfect investment condo

There are lots of things to consider when you're hunting for the perfect investment condo. Not only do you need to find a great apartment in a fantastic location, you also need to be aware of the needs and expectations of the market both now and in the future. While many of these issues are similar for detached houses or condos, there are particular lifestyle factors for condos that need to be addressed. Once you understand your market, you can eliminate a lot of guesswork from the process and make decisions based on knowledge and confidence.  

Lifestyle factors

Before investing in a condo, it's important to understand what drives the market. Lifestyle factors are a key consideration, with people often choosing to live in condos as a way to improve their quality of life.

Whether you're investing in a holiday condo or a trendy inner-city condo, you need to be aware of the lifestyle benefits of condo living. From the culture of the surrounding area through to the sense of community that exists inside the building’s walls, when you're buying a condo, you're buying into a particular lifestyle.    


Modern condos often include amenities such as swimming pools, gyms, entertainment areas, saunas, rooftop terraces, BBQs,  and more. Because these facilities are shared with other people living in the community, residents can enjoy them without the huge financial outlay of ownership. If you're investing in a condo as a way to generate rental income, a dwelling with lots of amenities is a great way to attract tenants. While the inclusion of amenities will raise the price of a condo, renters will pay much more for condos with extras.

Traditional amenities such as pools and gyms are often not enough, with developers also including technology and wellness features in order to stand out from the competition. From fiber optic Internet and automated cleaning through to security systems and electric vehicle charging stations, smart devices are more important than ever. Health and fitness amenities are also an important part of the condo lifestyle, with yoga and wellness facilities joining gyms and tennis courts as they become part of the wider condo experience.

Location and community

The location of a condo is a critical consideration in any investment decision. Whether you want to generate rental income or build equity over time, many of the benefits of condos are linked to their location. Along with proximity and commute time, it's also important to look into the safety of the neighborhood along with the surrounding community and culture.

Buying a condo is not the same as buying a house, with the lifestyle and culture of the surrounding area having a huge effect on the desirability of the apartment, how much rent you can charge, and the future growth potential of the condo. More than just a buzzword, the condo lifestyle is all about connecting with the wider community.

Whether you're talking about other people in the building or other people in the neighborhood, condos represent a new way of living. Rather than spending all of their time isolated in a large house, people are longing for a sense of interaction and community engagement. This is a key consideration for anyone who's buying an investment condo, with demand likely to be much higher for community-oriented buildings in popular parts of the city.  

The building

The surrounding building in a condo complex plays a crucial role in any condo purchase, after all, no condominium stands alone. Along with the size of the building, it’s also important to look into the age of the building and financial health of the homeowners association (HOA).

Both the age and size can have a significant effect on the maintenance fees, with older buildings more likely to need maintenance and smaller buildings also more expensive due to economies of scale. It’s also important to look into the number of renters in the building, because if it’s more than 50 percent, you may not be able to get conventional financing.

Market factors

Understanding the psychology of your target market will only take you so far, however, you also need to have a basic grasp of the driving economic forces that shape the local property market. While much of this is down to basic supply and demand, being able to make sense of property data and make accurate forecasts requires a lot of expertise.

While lots of people can identify a hot location and jump on the bandwagon, sometimes it's too late. Ideally, you want to buy somewhere that's on the way up, which requires a delicate combination of market intelligence and local knowledge. When attempting to forecast property market growth, there are lots of resources at your disposal.

Firstly, you can look at historic growth patterns by month, quarter, and year, which should give you a good indication of how much growth certain neighborhoods are experiencing. It's always important to distinguish the condo market from the wider market, and look at how growth rates are changing over time. Other useful data includes time on market rates, auction clearance rates, expert forecasts, construction rates, and sales volumes. Demand is not enough in isolation, with the oversupply of new condos a big issue in some markets.

Getting a mortgage for a condo

While condominiums can be a great choice for people who want to buy an affordable home with fewer responsibilities, obtaining finance for a condo investment can be challenging. While mortgage qualifications are almost identical between a condo and detached dwelling, there are some key differences depending on your location and financial status.

You can use our condo mortgage calculator to help better understand your budget when considering buying a condo.

Once these hurdles have been overcome, the lender will take a look at your income, debt levels, and credit history in relation to the down payment and mortgage amount.   

Condos involve a unique hybrid form of ownership, with the individual condo owner responsible for the interior of the property and the condo association responsible for the building exterior. This is obviously more complex than a standard mortgage arrangement, with the individual apartment owner and condo board both needing to be approved by the lender. While this can be challenging and take more time than a standard mortgage, it also involves an extra level of security.

In the United States, all lenders follow guidelines from the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac. The condo in question must be included on the FHA-approved condominium list. In addition, at least 80 percent of the FHA loans in the condo complex must be for owner-occupied units, and at least 51 percent of all condos must be owner-occupied. The history of the building is also important, with the condo project needing to have been completed for at least one year, and the association needing to show positive financial health, including adequate insurance and financial reserves.

The situation is similar in Canada, with lenders looking into each project and condo board to ascertain financial stability during qualification. While condo mortgages can be easier to obtain due to the lower cost of the real estate involved, there may be complications. Approval can take longer because the financial stability of the mortgage depends on the financial health of the entire building. In some situations, smaller lenders may avoid condo loans after viewing them as a more complex and potentially riskier investment than detached houses.

Capitalizing on your investment

People invest in property for many reasons, with some wanting to generate rental income to help pay the mortgage and others searching for a way to build equity on a long-term basis. While these two scenarios are not mutually exclusive, it's important to have a plan of attack before you purchase a condo. Along with deciding how you will capitalize on your investment, it's also important to think about timelines in order to come up with a mortgage that works for you.  

Your end goal and exit plan should influence your decision of where to buy, with some neighborhoods more likely to have a strong rental market and others more likely to experience healthy capital growth. Some people have a well organized exit plan in place before they've even signed a contract, which provides them with a goal to work towards and something to focus on when every decision is made. While this is not always necessary, being as clear as possible from the outset will improve your decision making.  

Renting vs selling

Choosing whether to rent or sell your condo can be a tough decision. While renting your apartment provides you with a solid source of ongoing income, it can also deprive you of a much larger source of capital. Like many things in life, the decision you make should be based on timing, with renting a great option when you need to ride out weak market conditions. If you do it right, renting your condo allows you to profit twice, first from the rental income and then from the capital gains when you sell.

The biggest problem with renting is the opportunity cost involved. Defined as the loss of other alternatives when one option is chosen, the opportunity cost of renting is the capital that you could gain by selling.

While renting your condo provides you with a reliable source of income, you can't take advantage of the equity for other property deals or projects. Once again, this comes down to timing, with patience critical if you want to buy when the market is low and sell when it's high. There can also be restrictions on renting condos in particular locations or certain times of the year, so do your homework and check with the condo association before you sign a contract.

Weighing up your options

Getting involved in the property market demands serious contemplation. From saving a deposit and researching the market through to obtaining finance, there are many things to take into account. At the end of the day, investing in a condo can be a safe and profitable way to capitalize on your investment.

The condo market is on the rise across much of North America, as people look to improve their quality of life, downsize, and access affordable housing in desirable locations. You can take advantage of this movement through clever investments in key locations, generating reliable rental income and building equity in a way that’s more affordable, less time consuming, and easier to manage than other real estate investments.