The Pros and Cons of Buying a Condo as an Indianapolis Real Estate Investment
When it comes to Indianapolis real estate investing, there are several different types of properties you can pursue.
There’s single family, duplexes, townhomes, commercial, apartment buildings, and the topic of today’s discussion, condominiums.
Every type of property investment has pros and cons, and condos are no different.
Some investors will tell you condos are a great investment, and others will tell you they’re the worst.
It really just comes down to your investment goals and what you’re looking for as a Landlord.
Buyer clients frequently ask us if they should consider condos, and while we can’t give a definitive yes or no answer, we can provide some pros and cons.
Pros of Buying Condos as Indianapolis Real Estate Investments
- Little to No Exterior Maintenance Responsibilities
Perhaps one of the best things about owning a condo, is that you’re responsible for little to no exterior maintenance.
This can save you quite a bit of money in the long run especially on big ticket items like the roof or siding.
In most cases, the HOA takes care of all the exterior items of the building, leaving you to just have to worry about interior maintenance.
Landlord Tip: You’ll want to thoroughly review the CCRs and any other documentation the HOA provides to understand exactly who is responsible for what.
- Lower Price Points
You can typically find condos at a fraction of the cost of single family properties.
In Indianapolis, you can find nice units in solid areas for less than $100K.
If you don’t have the funds for a pricier investment, condos could be a great option for you.
Condo communities almost always offer some sort of amenities such as lawncare, snow removal, security, or recreation options like pools and parks.
These are very appealing to potential tenants and can greatly aid you in marketing and leasing your unit.
- Cash Flow
A big appeal for investors when it comes to condos is the potential for cash flow.
With the low purchase prices and higher rent capabilities, it’s not hard to find a condo that greatly exceeds the 1% rule.
Fewer maintenance obligations can also help your bottom line over time.
Cons of Buying Condos as Indianapolis Real Estate Investments
- HOA Fees
The biggest downfall of most condo communities, is that they charge a monthly HOA fee as opposed to single family neighborhoods that usually charge yearly.
In Indianapolis, these fees seem to range from $120-$320/month.
This can severely eat in to your cash flow and throw off your numbers.
- Rental Restrictions
Some HOAs, whether it’s a condo or not, have rental restrictions.
These are regulations in place the dictate whether or not a unit may be leased, how many units in a community may be leased, how short or long a lease term must be, etc.
Condo communities will most commonly have a rental cap, meaning only a certain number of the units are allowed to be used as a rental. This is something you will want to get information on before purchasing a unit to ensure you can use it for your intended purpose.
If a rental cap is the case, you have to understand the risk that you may not be able to lease your unit at a future date.
We had a previous client learn about rental restrictions the hard way, you can read more about that here: Renting in a Rent Restricted HOA
- Slow Appreciation
Another downside to investing in condos, is that the long term appreciation will not increase nearly as much or as quickly as many other types of properties.
This is due, in part, to the fact that when you buy a condo, you only own the interior living space, not the land.
And since land is a driving factor to real estate value, you’re not going to see the same increase in value as you would in a single-family property.
The last con we’ll discuss about purchasing a condo as rental, is the financing.
For several reasons, lenders find condos to be more risk.
Because of this, they will usually require you to put at least 25% down.
In our experience, there are almost always some sort of road bumps and hoops to jump through during the closing process as well which usually causes delays.
Condos aren’t a fit for every investment strategy.
It’s important that you understand all of pros and cons before deciding to jump into buying one as a rental.
If you can find one at the right price where the HOA fees don’t eat all of your cash flow, and you don’t mind slow appreciation, then it might be for you.
However, if you don’t want to deal with the hassles and risks of an HOA and are counting on long-term growth, then you’ll probably want to focus on other types of properties.
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