Watching TV the other evening, I saw a story on the news about condo prices being driven up in some cities. This was happening because people were buying them as investments. I’d never thought about how much a condo appreciates in value, or not. So I decided to look into it a little more and discovered some fascinating information about condo appreciation.
Do condos appreciate in value? Yes. According to the National Association of Realtors, condos do appreciate in value. In fact, condos have routinely outpaced single-family homes in appreciation over the last decade. However, that statistic is for the nation as a whole. The level of appreciation or depreciation varies from place to place.
Many buyers are wondering if sinking their hard-earned dollars into a condo is a good bet financially. The thing is, there are a number of elements that affect how much the value of a condo appreciates. Read on to be informed, educated, and surprised by what makes a condo price go up or down.
Condo Price Changes Across The US
It has been a long-held belief, for some people, that condos do not really appreciate in value. Or if they do, the rise in cost is very slow. Then you’d have to own your unit for decades to make your money back with a bit of profit on the side.
However, the days of a blanket statement that covers whether or not condos appreciate in value are long gone. So much goes into an appreciation of the purchase price that you can no longer talk about condos as a whole, any more than you could say all house appreciate or you’ll never make your money back on a townhouse.
The National Association of Realtors are not the only ones to confirm that condos. Despite what many people think, condos can and do appreciate in value. Real estate website Trulia reviewed data of house and condo prices in 100 major metropolitan areas in the US. These areas combined cover two-thirds of the population of the USA, so this coverage is extensive.
After combing through five years worth of data they came up with the following results.
- On average, across the country, the average condo market value rose by 38.4%over the five year period.
- In the same five year period, which covered February 2012 to February 2017, the average single-family detached house rose in value by 27.9 %
- The list of major urban areas where condos prices were going through the roof includes; Dallas-Fort Worth, San Diago, Boston, New York, and San Jose.
However, the appreciation of a condo is not just reliant on the city in which it is built. There are plenty of other factors at play.
In many parts of the country, condos or apartments were where the people who couldn’t afford houses lived. This lead to people buying houses, in part to avoid the impression they couldn’t afford more. Hence, condos did not appreciate in value.
These days the tide has turned. The successful young professionals of today don’t want to live in the ‘burbs’. Instead, they are spending their money on swank condos, close to the center of cities where all of the action is. Demographics and changes in society and culture are just a few of the reasons why, today, condos appreciate in value.
You can’t do much to measure culture or predict long-term shifts in demographics. There are many factors you can consider if you want to predict whether or not a particular condo is likely to appreciate in value.
Supply And Demand
The number of available condos in the area will have an effect on whether or not your condo appreciates in value. Other land in the area that is available for future development will also impact values.
If you live in a city where there is plenty of land available on which to build housing, and there are multiple new condo complexes with vacant units, your condo will not rise significantly in value any time soon. With a wide range of condos from which to choose any potential buyer will have the upper hand in a price negotiation. In this kind of market prices are less likely to rise.
If, on the other hand, there a small number of condos for sale and minimal space available for new builds, it is likely your condo will appreciate in value more quickly.
Location, Location, Location
Condos within walking distance of good quality transit are often more valuable and appreciate more quickly than those further away. Likewise, condos which are convenient for quality stores, entertainment, and places to eat, are more sought after than those which are not.
You can improve your chances of a condo appreciating in value if you buy in a newer, up and coming area. It is not a guarantee of success, but it gives you a better chance of being better off when it comes time to resell.
Condo fees have a significant influence on a potential buyers decision to buy or not to buy a particular condo. Lower monthly or annual fees can be an excellent bargaining chip when it comes to selling a condo, and higher fees can send your buyers running for the hills.
For this reason, you should take the condo fees into consideration. Not just in regard to your monthly budget while you own the unit, but with an eye to how appealing or otherwise, the fee level will be to buyers in the future.
However, condo fees alone do not tell the whole story. A higher monthly payment can be offset by an onsite fitness facility, social events on site, or other sought-after amenities.
The Age Of The Condo
As a condo complex ages, it will need more work and, eventually, renovation, meaning the condo fees you budget for today can quickly rise. When considering buying a condo look over the contract details to see if the amount that fees can be raised each year is fixed or capped. Otherwise, you could be in for a nasty surprise.
Age doesn’t just apply to the regular maintenance fee either. Many condo owners have been unexpectedly slapped with a one-off bill for their share of a new roof, new windows, storm damage repairs, etc.
Your condo will have a Homeowners Association who will have to abide by a published set of rules called CC&Rs. This stands for covenants, conditions, and restrictions.
The CC&R’s are where you’ll find the sensible rules about things like parking or noise levels, that help keep everyone safe and happy. It is also the place where you will find any odd, quirky, or downright bizarre rules. These can put off any future buyers and therefore affect the levels of appreciation.
Should I Consider Past Market Performance?
One of the biggest mistakes many people make when considering whether or not to buy a condo is to look at how the price of a particular unit, or a similar one, has risen or fallen in the past. DO not rely on past performance to inform your decision.
So many things can affect the price of real estate that ‘It is worth more than last year so it should be worth even more next year” is flawed logic that could cost you money.
Is It Worth Buying A Condo To Rent It Out?
If you are considering buying a condo for the rental income make sure you take all of the costs into consideration. As well as your mortgage you should consider the following expenses:
- Condo fees
- Times the condo might be empty, between renters and you will have no income from the unit.
- Cleaning between tenants
- Repairs and redecorating
As a general rule of thumb, the smaller your down payment, the smaller your profit. This is because a large proportion of the monthly rent you receive will pay your mortgage.
Do not try to earn an income from a condo if you cannot afford to pay less than 20% of the purchase price as a down payment. In these circumstances your chances of going into the red are significant.
What Are Some Of The Weird Condo Rules That Have Scuppered A Sale?
Not convinced a few rules could make or break whether or not your condo appreciates in value? Take a look at some of these rules that ensured the condo owner had a hard time offloading their home.
- In one NYC building, tenants must be “on-the-verge” artists. They must go through an appraisal of their craft, by the HOA board, before moving in.
- One Floria complex insists that hurricane shutters look ugly. They say shutters can only be put up the day before a storm is forecast. They also say shutters must be taken down the day immediately after a storm.
- Many condos have maximum occupancy rules, for example; two children, regardless of the number of adults.
So, now you know that yes, condos do appreciate in value. However, you have to do your homework to be sure the one you plan to purchase will follow this trend.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.