You might be considering buying a condo as a first dip into the real estate market. This might be due to the fact that you are just starting out as a family, or you are a student or other younger person who wants to own something, and not just see their money sent off every month towards rent, with no returns at all. On the other hand, you might be an older person whose children have all moved out and who wishes to take advantage of the sale of the family home by moving somewhere smaller and saving the leftover profits from the sale.

All three situations are common to condominium buyers, but in fact there are quite a few downsides for at least two of the demographics prone to invest in condominiums. Let’s take a look at some thought processes behind condominiums purchases, and what the purchase will look like in reality.

  1. A condominium is similar to a house as an investment, in that it will increase in value. This is not true. Condominium complexes are frequently being built, thus the market is never in short supply. In fact, the presence of newer units in newer buildings may mean that your condominium actually falls in value!
  2. Condominium mortgage payments are equal to what I would be paying in rent anyway. This preconception about owning a condominium is actually true. The down payment to purchase a condo is pretty low, and there are tax deductions which do not apply to rent. However, you have to keep in mind the association fees which are attached to condo ownership. These fees will rise every year, sometimes dramatically. Moreover, you will pay them for as long as you own the unit.
  3. A condominium will serve as a source of income when I am ready to buy my own house and move out through renting. Again, this idea rarely plays out in reality. Condo owners will be competing against the owner of the building when it comes to finding renters AND buyers. They will be able to offer potential renters a better deal, so much better that if you try and beat it you will actually be losing money. And of course, there is always the danger of a bad tenant.
  4. Condos offer community living without an invasion of privacy. This is true. If you like the idea of living in the same complex with people you establish relationships with, including common area activities, then you might be perfectly suited to condo living. If you are not going to be using the pool or the other benefits of the common areas, however, you might want to rethink your options.
  5. Condos are easier to upkeep than houses. Also true. There is no need to mow a lawn with a condo, and you don’t have to worry about the heater or air conditioner blowing. Just remember that any job you don’t have to do, someone else will, and they will be paid through association fees.

Of course, there are always the pitfalls of community living, Groups of people tend to form social pecking orders, and a condominium complex where everyone is fighting will not be a nice arrangement for anyone. Find out how everyone in the building gets along before you sign on the dotted line.

The bottom line is that a condominium is not really a great purchase for people who are just starting out in life, such as newlyweds or young people. It is unlikely that the investment will pay off in the future, due to competition and falling sale prices. For people who are getting out of the market, however, a condominium purchase might work out well. There is the advantage of having neighbors for company as well as close amenities and recreation. Even people in this demographic will have to be sure to consider their association fees before purchasing a building. Remember that that price will always rise, and sometimes dramatically. Make sure to factor that in against what it would cost to rent a similar place. Unless you live in a university town where renters are constantly available, a condo might not be a very sound investment.

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