If your looking to purchase a condominium, here in the Mahoning valley, location, the reliability of the homeowners association's management, and the reputation of the developer should be three factors to weigh heavily in your decision. Ask your RE/MAX Valley REALTOR to give you price appreciation histories of the developments you are considering, and learn all you can about the association and the reputation of the developer.
Buying a used condo in an established area with a strong homeowners association will often be a better investment in terms of appreciation than building a new one in an untested neighborhood. Stay well clear of developers with reputations for frequent construction-defect and broken-promise litigation.
Investing in a condo to rent to third parties will see dividends from at least two sources; rental income (which should be high enough to give you a positive cash flow but low enough not to send your tenants to their nearest mortgage lender to buy their own) and appreciation. If your condo is in a resort area, you may see a third dividend if you only rent to tourists (who will generally pay rents above long term market rental rates) – the condo becomes available for your personal use when it is vacant for a vacation get away.
Concerning appreciation, it’s a fact that condominiums do not enjoy the same rate of appreciation of single family homes, mainly because investors do not own the land on which the condo is built, and because the market for used condos lags considerably behind the market for newly built, custom ones, as well as single family homes. However, over the long run, if you choose your location wisely, you should see gains worthy of the investment, especially now that ‘baby boomers’ are becoming more and more enamored with the condo life style.
If, after a time you choose to make the condo investment your permanent residence, remember, if you itemize your deductions, all the tax benefits associated with single family homes become available to you for the tax year in which you ‘move in.’ These include mortgage interest and property tax deductions, as well the generous long term capital gain protection. These deductions can often make owning a condo far less expensive than renting. Check with your tax attorney or accountant to see how you may benefit from these tax advantages.
If you don’t choose to ever make your condo your primary residence, the tax benefits to owning investment real estate are numerous and superior to most other instruments of investment, including the possibility of a Starker Exchange (1031 Exchange) or a ‘structured sale’ to defer payment of capital gain upon resale. Here again, the tax law waters are convoluted and treacherous for the layperson. Hire a tax professional to help you navigate them.
Buying Your Home: Condominiums - Is the purchase of a condominium a good investment?
This is not to say that one-bedroom condominiums do not have the benefit of magnificent appreciation gains in localized ‘high rent’ urban districts such as New York City, San Francisco, Los Angeles, etc. Here, where you must pay more for space than architecture, smaller condos hold their value equally as well, or better than their larger cousins.
Soothsayer demographers have long been predicting an explosion in the ‘single’ life style. If they are correct, we could increase the demand for one-bedroom condos. We have yet to see any glimmer of truth to this prediction, and, in fact, single females have shown a marked tendency to purchase single family homes, rather than condos. Go figure!
Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as: