Condominiums are a type of housing that is typically found in urban areas and were originally built as an alternative to apartments. There are now many different kinds, like duplexes, townhouses, and high-rise condos.
It can make sense for some people to buy a condominium instead of renting an apartment because they don't want the responsibility of taking care of their own home and yard work or because they intend to rent it out as a second property for income.
However, condos can be expensive, which means buyers need to take out loans where they give over their future monthly mortgage payments plus interest back to the bank until the loan is fully paid off.
When buyers default on the loans or the housing market softens and condo prices fall, the bank can demand full repayment, even though some buyers may have already made mortgage payments for years. Such a situation can be devastating if it happens in your 50s when you're planning to retire.
On the other hand, it can make sense to buy a condo as an investment if you don't use it as your primary residence and will rent it out for most of its lifetime. Â You'll benefit from tax laws that allow you to depreciate your purchase price over 27 or 29 years - which is less than half of what it would take to pay off the mortgage with monthly payments.
Depending on how long you plan to live in the condo, you might also be able to get a mortgage for less than the purchase price. You'll also pay less taxes when you sell it if it's your primary residence or you take advantage of capital gains tax exemptions.
Not all condominiums are good investments. Many high-rise buildings built in the 1970s and 1980s have not held their value. Over time, many modern high-rise condo buildings have faced financial problems and been knocked down by developers who can't afford to keep paying for them.
But there are many newer, better-constructed buildings that have great potential. They might be found in busy, urban areas that have lots of residents and are close to good roads and highways.
An important consideration when buying a condo is the amount of debt on the building. Too much debt can make a building more susceptible to going bankrupt. It can also make it difficult for a developer to sell condos at a reasonable price if times get rough in the economy or if an area has other problems like high crime rates or pollution from nearby factories.
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