The Ultimate Guide to Investing in Condos and Townhomes

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Five years ago, I unwittingly embarked on my real estate investing journey. I didn’t set out to become a real estate investor — it just happened. You may even be able to relate!

As a senior in college and a Sociology major, I knew my next path would most likely lead to graduate school. My mother (thanks, Mom!) urged me to consider buying a property, as both programs I’d applied to were at the same university. So one day we decided to look at a condo I found on Craigslist, and before I knew it, I was at the closing table.

To be honest, I had no idea what I was doing. I was 21, had never “spent” that much money before in my life, and didn’t know the first thing about managing a property. It’s amazing what a few years and some hard lessons can teach you — I probably should have read BiggerPockets first. 😉  

When I mention that I invest in condos and townhomes to others, I usually get one of two responses: a) “Are you crazy? Everyone knows condos make terrible investments!” or b) “OK, tell me more…”

I totally get it. Most of the time when people think about real estate investing, they think of a single family home or an office building — rarely is it a condo that first comes to mind. And in some markets, that’s for a good reason because a condo truly IS a terrible investment. But before jumping on the condo hating bandwagon, I urge you to run the numbers for yourself. They rarely lie.

Note: Though I am addressing the topic of investing in both condos and townhomes, to minimize repetition I will refer to these collectively as just condos.  

Why Condos?

There are a few characteristics of condos that make them an appealing investment, especially for a novice investor like I was at the time.  

First, they are usually priced lower than your typical single family home. The barriers to entry are substantially lower, which means an aspiring investor can put their money to work sooner rather than later. For many, saving for the first down payment is the toughest part; once the snowball gets rolling, though, watch out!

Second, they are generally easier to maintain. Since the homeowner’s association usually takes care of the grounds and exterior maintenance, a condo landlord is only responsible for the space from the walls in. Depending on the HOA covenants, this may or may not include the heating/AC unit and the hot water heater. Townhome units are usually similar, with the main difference being that by owning a townhome, you own the physical land underneath as well. Again, the HOA will have the last word on what the landlord is responsible for maintaining, but being able to outsource major eventual maintenance items such as the roof, siding, parking, etc. can free up mental bandwidth for other things.  

Lastly, due to the ease of maintenance, they are also generally easier to manage. As a self-managing landlord, it’s helpful to be able to call the HOA manager if I see a piece of siding that has been damaged, for example. At times it feels almost as if I have a property manager without the added expense of 8-10% of monthly rents.


How Are Condos Different from SFHs?

The biggest difference between condos/townhomes and single family homes are shared walls (and/or lack thereof). For many who are purchasing a property as a primary residence, any kind of shared space is a deal breaker. However, as a potential condo investor, you may be in luck! Denser housing is definitely more efficient with space, which is why you tend to see condos and apartments located near bustling downtowns and university areas. Shared space usually means shared costs, which is always a plus in my book. And if you buy in a sought-after location (where rents tend to be highest), you are able to benefit from the purchase price discrepancy since condos tend to be the lowest priced properties.  

Another thing to keep in mind, especially if you decide to “house hack” a condo (a term invented by our lovely Brandon Turner, referring to living in one bedroom and renting out the others), is that given your shared space, condos tend to make for slightly noisier living. Unless you live on the top floor, you will likely hear your neighbors above you at some point, and depending on the thickness of the walls, you may hear the neighbors on both sides of you as well. Plus, if there is parking directly below your unit, hearing cars coming and going comes with the territory, too.  

When you own a single family home, you own the entire parcel of land the home sits on, which means you alone are responsible for the upkeep and maintenance. This means setting aside capital reserves for eventually replacing the roof, landscaping, cutting the grass, etc. Some landlords pass yard maintenance duties onto their tenants, but I tend to be of the mind that the less you put your tenants in charge of, the better. With condos, this should all taken care of by the HOA.

Related: What Everyone Should Know About Condo Ownership (But No One Tells You)

Ultimately, this is one of the pieces of the puzzle that is entirely subjective. Do you prefer to outsource ongoing maintenance of the property to an HOA in exchange for a small cut of profits every month (assuming a healthy HOA — we’ll cover that later)? Or would you rather keep more of the profit, but do more of the work? Like with many things in life, it’s a tradeoff — you have to decide whether the tradeoff is worth it.

HOAs can be great, as many have an HOA manager (most commonly a property management company) that oversees everything regarding the shared spaces. This is definitely a double-edged sword, though, because any space that the HOA controls is space that you don’t control. So while the condo and everything inside might be yours, the building you are in is not owned and thus not controlled by you.  

The last notable differentiator between the two that I’ll mention is cash flow versus appreciation. Single family homes tend to appreciate much more than condos, as they tend to be more in demand. Personally, though, I don’t buy for appreciation — that is like gambling to me. I’d rather purchase a steady stream of income and not worry about the market price versus purchase a property that has a lower rent to purchase price ratio but has “potential” for appreciation.  

Another reason that condos may not appreciate as much as single family homes is because it is more difficult to get financing for them. We’ll cover that topic in detail after this next section.   

Know Your Market

As we all know, real estate is extremely local. So making a blanket statement such as “condos are terrible investments” before actually running the numbers might be a huge mistake. Perhaps you live in a college town. Or maybe you live near a city with numerous tourist attractions that bring visitors year-round. I’ve personally talked to buy and hold investors in both the student housing and vacation rental space that easily make the numbers work.

Key to all this, of course, is doing your research. And when I say “research,” I mean talking to your local real estate agents and investors; pulling up Craigslist, the MLS, tax records, and determining whether there is a big enough price discrepancy between condos and single family homes that you can exploit; and looking at which sub-areas rent for how much and why.

Do single family homes meet the 1% rule? If not, do condos? (I’ve found the answer in my market of Raleigh-Durham to be oftentimes no and sometimes yes, respectively.)    

There are some qualitative reasons why condos can be good investment properties, but the first filter should be the numbers. Personally, if a property doesn’t meet the 1% rule, I don’t even look at it. If it is hovering just around 1%, then I may or may not set up a showing, depending on other factors (such as how long I’ve been looking and/or the area).

(For those of you who are unfamiliar with the 1% rule of real estate investing, it is a general rule of thumb that says monthly rent should equal at least 1% of the purchase price of the home.)

The best way to know your market is to get in it and start looking. Drive by properties, tag along with your real estate investing friends, talk to real estate agents, and get to know your city. The last item is super important, and it’s how you can identify potential niches. For example, so far I’ve gone into student housing — not only because I’ve attended the local universities and have contacts there, but because I’ve researched the numbers and I KNOW that properties in these areas, IF BOUGHT RIGHT, are cash cows.



Ah, financing. The crux of investing. Unless you’re paying cash, obtaining financing is crucial to the process of buying a property for obvious reasons. On an investment property purchase, the bank is likely going to ask you for a 20% down payment at minimum, and in my experience, the interest rates on investment property loans are slightly higher (but that shouldn’t deter you since if you buy right, the tenants are paying that expense anyway). Of course, if you plan on living in it and house hacking, then you can swing a loan with less money down required. This may be the best way to get started if this will be your first property or if you’re young and single.

The type of financing you need to get depends on the deal. Since my experience has been with traditional bank financing for long term buy and hold condo projects, that’s primarily what I’ll speak to. The true test of a cash cow property is to plug in the numbers using a 15-year mortgage. If the property STILL cash flows after that, you have a winner.  

However, even if it DOES cash flow on a 15-year note, personally all the notes I hold are those with an initial term of 30 years. Why? That lower payment gives greater flexibility. For example, this month I replaced the floors in one of my rentals with laminate, and I was able to pay for it by not touching my day job earnings because I saved the excess cash flow from my rentals for a few months. If I’d had 15-year notes and the higher monthly mortgage payments that come along with those, I’d have no choice but to turn that excess cash flow into equity — which isn’t a bad thing necessarily, but is rather limiting.  

What’s more is that if you have a few months of excess cash built up, just sitting around collecting dust, and you have no prepayment penalty (make sure of this before you sign the dotted line), you can throw that cash toward one or more of your mortgages if you want. But ultimately, you get the choice with the lower required mortgage payments of a 30-year term.

Related: What Investors Should Know BEFORE Selecting Condo Insurance

Depending on the location of the condo complex, the ratio of investor-owned to owner-occupants may be extremely high. If this is the case in a complex you are considering, know that your financing options are limited. It would be best in this scenario to secure financing with a bank that lends at non-warrantable condos before even making an offer.

What are non-warrantable condos? Basically, when a bank gives you a loan, in the majority of cases they turn around and sell that loan to Fannie Mae or Freddie Mac. However, Fannie and Freddie impose rather strict guidelines on the loans that they will buy — one of them being the investor-owned to owner-occupied ratio should be 50% or lower. Thus, if a condo doesn’t meet these “warrantability” requirements, it is considered “non-warrantable.”

But have no fear, there are banks that will loan on non-warrantable condos — you just have to find one that keeps their loans and doesn’t sell them to Fannie/Freddie. In many cases, this describes credit unions and smaller mortgage banks.

These financing limitations could help explain why condos tend to sit on the market for longer than single family homes and why they don’t appreciate as quickly. It is also something you want to keep in mind for potential resale down the road. Personally, this matter doesn’t keep me up at night because I plan on holding my condo investments for a long time, but your mileage may vary.


The Downside(s) of an HOA

I’ve covered many reasons why HOAs can be beneficial (such as ease of maintenance and shared costs of common space), but there are some risk factors concerning HOAs as well that you need to be aware of.

Before you buy a condo (or any property for that matter), make sure to do your due diligence. Request copies of all the HOA governing documents, including the covenants, bylaws, financial statements, budgets (for past years and current) — and perhaps the most important, a statement of reserves. The reserves are the amount of cash on hand to pay for large expenses, including the roof.

Each HOA is different, but in many areas they also limit the amount of allowed rental units — most likely in an effort to preserve the integrity of the community and keep the condos “warrantable” for ease of financing (and thus resale). This will definitely derail your plans if you are planning on renting out your unit, so the sooner you find this out, the better.

While it’s true that you own the physical space inside the condo unit, unfortunately the HOA’s decisions still trump yours.  

The possibility of a special assessment can also be daunting, which is why it’s important to inspect the health of the HOA financials. If a tree fell on your building and the entire roof had to be replaced, would they be able to cover that cost? Or would they need to assess a one time fee to all owners in order to collect enough money for those repairs? That is what is meant by “special assessment.” In some cases, they are a one-time fee, but they can also be required for multiple years in a row if the HOA is truly in a pickle.

Being a Condo Landlord

Once you’ve invested in a condo, this is when the fun really begins! The great part about real estate (in my opinion) is that there are many ways of making it work — a few tweaks might even bring you higher cash flow. It’s totally possible to capitalize on unique advantages.  

I’ll use my properties as an example. They are located about 10 minutes away from downtown Raleigh and 5-7 minutes away from NC State University. This means that space is always in demand, whether it’s from students or young professionals who work in the city. It’s also less than a mile to Interstate 40, which can take you to Durham/Chapel Hill in 30 minutes or less, depending on traffic.

With student housing, offering individual leases is a huge plus, as many don’t want to take the risk of paying for an apartment and then having their roommates screw them over by not paying rent. This way, everyone is accountable for only their portion. The added bonus for investors? You can usually charge more for this!

Another interesting trend I’ve noticed around college housing is the demand for short-term leases. Some students might be traveling abroad for a semester or they might be international students staying in the United States for only a semester. Apartment complexes in the area charge an extra $100-$200 per month for a short-term lease, if they even offer it at all (many don’t). I decided I would start allowing short-term leases for an extra $25/month.  

Since these condos are located in a great area, there is never a vacancy issue, even during “off” months or in the summer. Yes, increased turnover means I have to go in there and clean between tenants a little more often — but it doesn’t take me much to quickly vacuum and sanitize everything, especially if it’s just one room.  

Related: Why I Choose to Invest in Condos & Townhomes Over Single Family Residences [With Example Analysis!]

(Note: I’ve very recently hired a house cleaner in order to focus my time on my real estate brokerage business, so I may up my short-term rental fee an extra $50 per month, which is still reasonable).

These are just a few ways that I have personally juiced the returns on my rentals. There is a fine line between automation and being hands on — and only you can decide the perfect mix for yourself.  

You can achieve a good balance by using automation to fill the gaps. For example, Cozy will collect rent payments for you and deposit them into your bank account. The catch is that it is delayed, so it takes about 10 days to process, but you do receive an email notification when your tenants have paid. Other property management tools out there might have additional options, such as letting tenants submit repair requests.



Hopefully I’ve illustrated a few good reasons not to immediately reject condos as potential investment properties. While there are a few things to watch out for when it comes to the HOA, if you find a lucrative niche, a condo can be a cash cow — even in spite of the HOA fees paid every month.

We’re republishing this article to help out our newer readers.

Investors: What’s your experience with condos? Would you consider this investment in your market? Why or why not?

Leave your comments below!

About Author

Tiffany Alexy

Tiffany Alexy is the Broker/Owner of Alexy Realty Group, a boutique real estate firm located in the Raleigh-Durham, NC metro area. She actively invests in her own buy and hold projects. With several financial certifications under her belt, Tiffany specializes in helping individuals understand how real estate can fit into their investment portfolio. In her spare time, Tiffany loves to ride horses and travel.


  1. Alejandro A Amores

    I have owned condos for rentals in the past, currently have one and looking to investing one more just to get started once again , I agree they are a much easier investment, specially if you can afford to pay cash
    rentals are in high demand now

  2. Michael Boyer

    Great piece!

    Condos can be a low hassle management proposition for the DIY landlord for sure (no snow to shovel, gutters to clean, lawns to mow 🙂 …

    One x factor is the politics and while you get less property concerns, as you mention, you may have a more people heavy enterprise (working with close neighbors, the board, the manager, etc).

    Finally, there can be some anti-investor sentiment at some association (so be sure and probe for that with the documents and even asking around; find one where owner occupants and investors get along and have a good ratio as noted)…

    My top tip for newbies (and even experienced folks), think about getting on the board at some time, perhaps early on. You can learn about property management, show you are a participating member (even if an investor) and perhaps even deflect any anti-investor policies and dispel any myths. Then exit stage left when the time is right and folks will recall you did your part and put in your time–even if not a daily resident. Best of luck…

    • Tiffany Alexy

      Hey Michael! Agreed on all points. I joined one of my condo boards and I’ve definitely learned a lot– all about exciting topics such as water sub metering, HOA budgeting, fire inspections, etc. But the knowledge is invaluable! 100% of the board are investors so definitely no anti-investor sentiment on that one, haha…

      Thanks for reading!

    • Denise Brown-Puryear

      I certainly agree! We currently own 8 Town Homes just 2 minutes from Business 40, Int. 85 (south), and the 840 Loop which runs north around Greensboro to PTI airport. Plus we’re not far (just 10 minutes from Alamance Crossing dining, shopping, movies, etc.). These were purchased as they were being built (under 100K) and we have just formed our first Board of which I am Vice President.

      I’m a seasoned, hands-on, long-time investor who has been involved with sitting on various BOD’s in New York. Where possible it’s always best to work from within. Dealing with the dynamics of personalities and people is a very essential part of this business whether investing in Condos/Town Homes, SFH, Multi’s, Commercial, etc. After all, this is a people oriented business. Great article Tiffany!

  3. Jade S.

    My first investment property was a townhome, and I bought a VA REO townhouse as my second one (I’ve been buying all SFH since then). They have been easy to keep rented out, cash flow around 9-11% COC even with the HOA fees (fee simple purchase), and the maintenance side has been almost nonexistent. But the HOAs are Hawks…make sure the tenants abide by the CC&Rs or you’ll get “nasty grams” from the association on occasion.

  4. Frank Boet

    I want to invest in a condo with our HELOC. The problem is that they are more difficult to refinance and I don’t want to tie up all of our money in just one condo in case we can not refinance. Any suggestions? Btw, are town homes easier to refinance? Thank you, Frank

    • Tiffany Alexy

      Frank, great question. This is probably a question for a mortgage loan officer as I’m sure the answer is “it depends” and one with expertise in your local market will probably be more helpful than I could ever be. I wouldn’t want to risk tying up all my money in one condo, either.

  5. John Barnette on

    I own condos and sfr’s in my portfolio. I have found condo values to be much more volitle. Which can be a benefit for sure when looking for deals. Especially if traditional financing is a challenge. The rental cash flow is not nearly as volitle and thus makes for some promising numbers. But not as liquid if you need to sell in a tough market or with HOA specific challenges (litigation, high rental rates). I think a good part of a portfolio, but maybe tricky if the only holding.

    • Tiffany Alexy

      Agreed, John. Like with any investment choices, diversification is key. I have primarily condos and townhomes now, and I’m torn between sticking to what I know or branching out into SFHs where the #s on paper don’t look quite as good. I don’t own any two properties in the same complex, though.

  6. Bruce Coleman

    While I do not own any SFHs, I am in the process of purchasing my third townhouse. One advantage I see when comparing town homes versus SFHs is they cost less time to own. I think we as investors often times get caught up in chasing the money. Don’t get me wrong. I’m rather fond of money. I am also fond of my time though too. Perhaps more money can be made in SFHs, but at what cost to your free time. For some investors, free time is the resource in greatest demand and they can live with slightly lower (in theory) returns.

    Thank you for your article.

    • Tiffany Alexy

      Absolutely Bruce! Time IS money. I mean, you can always make more money, but you can’t make more time, so I’d even argue that time is more valuable than money. That’s why I’m a fan of outsourcing maintenance.

  7. David Krulac

    I have owned a bunch of condos over the years. and even developed condo projects in multiple states. While I primarily invest in SFH, I do like some aspects of the condo investments. I really like the exterior maintenance aspect of the HOA. The condos that I have now are very well maintained and give a good impression of a desirable place to live. I like that the HOA is able to provide and maintain amenities that are attractive and usually not provided in SFH like swimming pools, tennis courts and club house.

    I’m not a fan of those special assessment, which actually amount to the HOA finances not being able to pay for all expenses. I’ve paid thousands in special assessment for new roofs, new siding and even extra snow removal. I think that some HOAs purposely keep the monthly fees low as an attractive feature, knowing that they don’t have enough money to pay for capital improvements.

    I don’t like high HOA fees; I’ve seen some as high as 33% of rent or higher. I’ve paid as low as 8% of rent for HOAs. And in some communities the HOA increases are sometimes $50 to $100 in one year. One board that I know raises the HOA every year by a small amount, even if they don’t have an immediate need for the increase. They do this to prepare for the future and to mitigate future large increases.

    Over the years one of the biggest changes is the anti-tenant position of many HOAs. As I mentioned in my Bigger Pockets Podcast #82, some HOAs around here have strict 10% limit on number of tenant occupied units. And those limits are already met. Another HOA where I’ve had property put in their rules that no new rentals are allowed after 2008. These provisions have an effect of lowering the values of all the units in the development. I did a study of rental restrictive HOAs versus no rental restrictive HOAs, some on both sides built by the same builder and virtually identical units. The non restive units always sold for higher prices. The difference was greater depending on the higher percentage of investor buyers in the buyer pool. The more investors buying the higher sale prices. Effectively the HOAs that were rent restrictive actually decreased the value of all the condos in the development and increased the days on market.

    • Tiffany Alexy


      Very insightful response, thank you. Around here I haven’t seen the rent restriction issues yet, and I’m hoping they never come. Given the proximity of my condo complexes to the university, I think it’s pretty unlikely that any of the boards would make that decision, as the Boards themselves are comprised of 90-100% investors.

      Good point about artificially low HOA dues. That is always a sign– when something seems a little too good to be true. It’s why I stress the importance of due diligence. You may not be able to catch everything, but making sure to do adequate research beforehand will ensure a higher success rate.

      Thank you for reading and commenting!

  8. Melissa Szanati

    Planning to house hack a condo for my first investment property, so this came to my inbox at the perfect time! I’m just waiting for the agent to get me some ppwk on the issues they’ve had with getting financing with the HOA in the past. Since it’s a foreclosure and there are only 5 units I’m guessing this unit sitting vacant is what messed with the reserves and why traditional lenders aren’t interested. Lots more to learn, but this was helpful

  9. Syed Hussain

    Appreciate the post I don’t see much information on condos on BP. I’ve heard condos are a mixed bag, but like you say it depends on the location and the local market. I’m currently saving up for a single family rental but I will talk to some professionals in the area and give condos a look.

  10. Edison reis

    Great article @Tiffany !

    I am with you …. I am focused on townhome and condos.

    The 1% doesn’t always work in western Canada but overall they cash flow reasonably well.

    Keep up the good work

    Kelowna, Canada

  11. Hayden Kepner

    My wife and I own 8 condos in the Atlanta area. They’ve all been great investments, easy to rent, and have all appreciated substantially since we bought them. The most important thing for any condo investor is to check on the finances of the HOA, the percentage of delinquent payers, and the status of the maintenance..

    Many condos have experienced severe cash flow problems over the last few years do to the recession. People often stopped paying their HOA dues. If a bank forecloses, it will need to pay HOA dues, but since the property was often underwater, bank’s often simply did not foreclose. This meant the HOA wasn’t collecting from anyone and couldn’t do anything about it (because the HOA’s lien is second to the bank’s lien.) As a consequence, many HOA’s couldn’t do the maintenance required on the buildings. Typical problems include leaking roofs, plumbing problems, siding problems, pot holes in the parking lots, tennis courts going into disrepair, etc. This deferred maintenance can easily run into the hundreds of thousands of dollars.

    Now that the economy and condo prices have recovered (at least in most of the country), a higher percentage of people should be paying their dues, but it might take several years to complete the deferred maintenance. There is an inherent tension between investors (who would rather “bite the bullet” and pay an upfront special assessment to improve the building and protect their investment) and the resident owners who often cannot pay for a special assessment, which means the deferred maintenance get stretched out further down the road.

    So, be very careful. Get the names of the board members and the management company. Call them up and ask questions. Try to get current financials and, if possible, an engineering report that will estimate the costs of the maintenance projects over the next few years. We’ve walked away from several attractive condo investments because of deferred maintenance issues that made the condo too risky for our taste, But we’ve done very well with the ones we’ve bought.

    • Tiffany Alexy

      Hayden, thank you so much for your thoughtful and well-constructed response. I’m glad you’ve done well with your condo investments. I agree – you have to be very careful. I’ve turned down many, many potential properties myself for a multitude of reasons, some of which you’ve listed above. Sometimes it’s just not worth it.

  12. Perry Apawu

    Condos are great if you have a great HOA board, unfortunately my wife had a bad experience with a condo a board who really didn’t care much about the building and it’s finances. But I can say we learned a whole lot front that experience, and that is vet the condo board and get involved with it if you do plan to own a condo or townhome.

  13. Allen Fletcher

    I have never thought of running the numbers using a 15 year mortgage. That tip is pure gold for determining if you can handle the risk involved. If you are a risk averse investor doing the numbers in that way will help you find the least risk properties to purchase (assuming you are diligent in all other areas).

    Thank You!
    Allen Fletcher

  14. Thanks for the post. More things to consider. I am new and still trying to find my niche but this opens up more possibilities.

    Much appreciated for the insight into the condo strategy for investing.

  15. Etienne T Manning on

    Hello BP and thank you Tiffany and all others. My name is Etienne Manning. I just purchase my first condo. There are 9 total units i have the 8th unit in this a building structure . All other units are vacant and are all in some kind of default with the city taxes/assessment fines. They are in a up and coming area in Columbus Ohio. There is no HOA with these units. Question #1. Can an individual start an HOA. Or is this something that is hired out to establish. I definitely would want to get some of the others units all but 2 others have high delinquent tax bills that have not been paid. And also the one next to me 3rd from the end fannie Mae just took control and has it in contract for sale.

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