1.Why Invest In Condos?

Investing in condos can be an attractive option for several reasons compared to single-family homes. First, condos typically come with a lower purchase price than single-family homes in the same area, making them more accessible and requiring less upfront capital. This lower barrier to entry is especially beneficial for new investors or those looking to diversify their portfolios.

Additionally, condos often come with fewer maintenance responsibilities, as the homeowners’ association (HOA) typically handles exterior upkeep, landscaping, and shared amenities. This feature makes condos a more hands-off investment, ideal for investors who want to minimize property management tasks.

Lastly, condos are often located in urban or desirable areas with strong rental demand, such as near public transportation, shopping centers, or schools. These locations can attract long-term tenants, ensuring a steady income stream and potential appreciation in property value. However, it’s crucial to account for HOA fees and restrictions, as these can impact your overall returns and rental flexibility.

2. Do Condos Appreciate?

Yes, condos in Arlington, VA, do appreciate, but their growth can look a little different compared to single-family homes. Sometimes market dynamics will favor one over the other. During COVID, many people wanted more space and to be more isolated, which led to single-family homes appreciating faster.

Arlington is a highly desirable area with strong job markets, proximity to Washington, D.C., and excellent public transportation. Condos near Metro stations, shopping, and dining are particularly attractive and tend to hold or increase their value over time. The steady demand for housing in Arlington—especially for condos—makes them a solid investment option.

A good condo association also plays a big role. If the association keeps the building and amenities in great shape, it helps boost the condo’s value. On the flip side, high fees or poor management can make the property less appealing. In a market like Arlington, choosing a condo in a well-maintained building with a strong location is a smart way to ensure appreciation.

 3. What Financing Options Exist for Condos?

Real estate investors who want to invest in condos have most of the same options as for a single family home, with a few exceptions:

Hard Money Loans: These loans are typically used for fix-and-flip projects or other real estate investments. Keep in mind that these loans are short-term in nature. While they often come with a higher interest rate, they offer real estate investors the speed, flexibility, and leverage needed to grow their businesses.

DSCR Rental Loans: DSCR (Debt Service Coverage Ratio) rental loans are a type of financing available to real estate investors who own income-producing properties like rental homes, condos, or multifamily buildings. Additionally, they offer competitive interest rates and terms, making them a cost-effective way to finance a rental property and offer flexibility in the amount of financing available, making it possible for you to purchase larger properties or finance multiple properties at once.

Conventional Mortgage Loans: Traditional loans are a common financing option for real estate investors. Banks and mortgage companies typically offer these loans and require a down payment of 20% or more. Unlike with single family homes, the lender is going to underwrite the building and the association. You might have stellar credit, but a lender might deny a loan in a condo building with deferred maintenance, high ratio of renters to owners, or a high delinquency rate. 

Portfolio Loans: Portfolio loans are offered by hard money lenders, private money lenders, and some banks or credit unions. They’re designed for the unique needs of real estate investors. These loans may offer more flexibility in terms of loan-to-value (LTV) ratios and underwriting criteria.

Cash: Paying cash for a condo is an option for investors who can do it. This can help avoid interest charges and allow for greater negotiation flexibility with sellers.

Two loan options that are generally not available for investors are VA and FHA loans. Both of these loan types require the property to be a primary residence for the borrower. The one exception is if you are buying a multi-family property and plan to live in one of the units as your primary residence. 

4. What are the Pros of Investing in a Condo? 

Investing in a condo can offer several advantages, including:

Affordability: Condos are often more affordable than single-family homes. This makes them a good option for first-time investors or those with limited budgets.

Low maintenance: Condo ownership often includes exterior maintenance and repairs. This makes it a more hands-off investment than owning a single-family home.

Amenities: Condos often come with shared amenities, such as a gym, pool, or common outdoor areas. These amenities can attract potential renters or buyers.

Location: Condos are often located in urban or desirable areas. This makes them a popular choice for those who want to be close to city centers or popular neighborhoods.

Security: Condos often have features like gated entrances or on-site security guards. This can give investors and renters a sense of safety and security.

Overall, investing in a condo can be a good option for those looking to build wealth through real estate. This is particularly true in areas where single-family homes may be too expensive or difficult to find.

5. What are the Cons of Investing in a Condo?

Investing in a condo can also have some drawbacks to consider, including:

Association fees: Condos often have association fees, which can increase the overall cost of ownership and eat into potential profits.

Restrictions: Condo ownership may come with certain restrictions. These restrictions may include limits on rentals or use of common areas. These restrictions could affect the ability to generate income or use the property as desired.

Limited control: As a condo investor, you may have limited control over the management and maintenance of the building. This is due to a homeowner’s association often making decisions.

Special assessments: Condo associations may sometimes require special assessments to cover unexpected repairs or improvements. This can be an additional cost to owners.

Overall, it’s important to consider the potential pros and cons carefully and assess whether investing in condos aligns with your real estate investing goals and financial situation.

6. Do Condos Offer a Higher Depreciation Tax Write-Off? 

Condos and single-family homes are subject to the same federal tax depreciation rules when used as rental properties. The Internal Revenue Service (IRS) allows residential rental properties to be depreciated over a 27.5-year period using the Modified Accelerated Cost Recovery System (MACRS).

The depreciation deduction is based on the property's adjusted basis, which typically includes the purchase price minus the value of the land, as land itself is not depreciable. Since condos often have a smaller land component compared to single-family homes, a larger portion of the purchase price may be allocated to the depreciable building. This allocation can result in a higher annual depreciation deduction for condos, potentially offering a greater tax benefit.

If you look at the tax assessment of a property, you will see two components: the land value and the improvements (i.e. the building). To see what an important difference this makes, consider these two properties in Arlington that sold recently, one is a single family home and the other a condo: