Living in a high rise is great for many reasons, hence why we’ve made this website in the first place! However, many of our articles apply to people renting high rise apartments; they pay the rent each month and otherwise live their lives without worry. What about high rise apartments or condominiums that are actually owned by individuals? When it comes to owning a place in a high rise instead of renting, there’s a lot more to be aware of. Are high rise condos a good investment? It depends on many factors, which we’ll be exploring in this article. Let’s get into it!
A Brief Disclaimer
Here’s a bit of information about us and our knowledge of the topic being discussed:
- We Are Landlords: We own a single-family home which is presently rented to a tenant, so we have some experience in ‘landlording’. We’ve lived in four high rises as tenants and have looked at high rise condos as prospective buyers, too.
- We’re Interested In Real Estate: We frequently look at properties for sale, even when not looking to buy, in order to gain knowledge and understand the ‘pulse’ of our local market.
- We Are Not Financial Advisors: This article is intended to provide information only, not financial advice!
What Do We Mean By Investment?
Let’s get into some financial jargon for a minute. According to Investopedia, “An investment is an asset or item acquired with the goal of generating income or appreciation.“
As a condo buyer, it’s essential to consider your personal goals and expectations when determining whether a purchase is a good investment or not.
Will the condo be purchased for personal usage, or will it be rented out to tenants each week/month/year?
Buying a high rise condo for personal usage can be a good investment, assuming the value of the property goes up. Even then, it’s not that simple – more on that below.
Given that appreciation over time is quite unpredictable, buying any type of property for personal usage is considered risky from an investment standpoint.
Buying a high rise condo to rent out is a different beast. You buy the place, pay all monthly costs and rent it to a tenant. If the rent you can collect in a given year is more than your costs, you’ve got profit!
This model is closer to the classic definition of an investment – you’ve got fairly consistent costs, revenue and profit. Still, value appreciation over time still matters, as does demand, market rates for rent and several other variables.
PROMOTION
LINK OPENS IN NEW TAB
Factors That Make High Rise Condos A Good Investment For Ownership
When it comes to overall happiness, it’s essential that we love where we live and that our home fits our lifestyle. Those factors are extremely important, but we’re speaking purely from an investment standpoint in this article – other factors aren’t considered here.
Let’s go through a few factors that make high rise condos a good investment from a personal use standpoint…or not!
Location
We can shop for real estate anywhere in the world and this variable will always be the most important – location, location, location!
High rise buildings are often in good locations, but not always. Proximity to urban centers, attractions nearby, local climate and the feel of the neighborhood all play a factor.
Location is relative, too. A high rise building might be only a mile from the city. Great, right? If there are 25 high rises that are closer, the demand for the mile-away building may not be as high, even though it’s in a great physical location.
Whether it’s buying a condo, house or plot of land, the best investments in real estate will always be in the best location possible.
Condition Of The Condo & Building
When we choose a high rise to live in, we obviously want our condo and the building itself to look good overall. Even from an investment standpoint – i.e. dollars – we want the condo to require little and for the building to be in good shape. Let’s go into the details.
The worse a condo is inside, the more money it will require out of pocket. “Worse” is subjective – a clean-but-dated apartment will eventually require updating just like a condo that’s a mess.
In terms of an investment, we want to own a condo that requires as little money out of pocket as possible. The less we spend over the lifetime of ownership, the more we ultimately keep when it’s sold – hopefully at an appreciated price!
The condition of the building also matters. Why? You own it! Partially, anyways. Whether the building is deteriorated, outdated or just plain old, it will eventually be updated. As an owner, it will be at your expense – more on that below.
Amenities
Residential high rises are more than just homes – they’re communities. When buying a condo for our own personal usage, we are going to be more attracted to a building with great amenities. In turn, prospective future buyers of our condo will be looking for the same!
Parking garages, gyms, pools and shared spaces are a few examples of amenities that a building can offer. Amenities make high rise condos a good investment – buildings with better amenities will always be in demand.
Of course, they come at a price…
HOA, Maintenance Fees & Taxes
As far as I know, all occupant-owned high rise buildings are governed by a Homeowner’s Association. In a condo complex, a Homeowner’s Association (HOA) is generally responsible for overseeing the maintenance of exterior of structures, common areas (lobbies, hallways), amenities and property.
While the HOA may oversee this maintenance and upkeep, they aren’t paying for it – the condo owners are! These are known as “HOA fees”. Any and all HOA fees are known as “shared expenses” between all of the owners, because they pay for shared features.
Between maintenance, upkeep, staffing and amenities, owners pay this monthly HOA premium (fee) on top of their condo’s mortgage. This can be affordable, but it can also be shockingly expensive. In the NYC area, for instance, HOA fees in a high rise can be thousands per months. Yup, well into the ‘five figures’ per year. That another entire hefty mortgage, just in fees!
The fees don’t end there, either. Although high rise condo buildings house many people and typically sit on a smaller lot, each condo owner technically owns a piece of the land on which the building sits. This means that high rise condo owners pay property taxes, too.
The HOA rules could also restrict what you can do inside your condo in terms of alterations, changes, etc. In terms of an investment, it’s critical to understand these rules and how they affect you!
Between monthly upkeep, maintenance, taxes and HOA restrictions, these fees are huge factors in determining whether or not high rise condos are a good investment.
Demand, Inventory & Local Market
Similar to location, the demand for high rise condos in a certain area is extremely important in terms of investing. Here are some things to consider.
- How long do condos in that area stay on the market?
- How many condos sold in the last year?
- Do you have access to any of this data in your specific building?
- What is the condition, styling and overall quality of condos that have been selling? What do similar condos sell for?
These variables are all important when making a purchase decision.
Factors That Make High Rise Condos A Good Investment As A Landlord
In terms of buying a condo for the purpose of renting it out, much of what we’ve covered already applies, so this section will be a bit shorter. Everything we’ve already covered should be considered before buying, but here are a few landlord-specific things to consider.
Calculating Profitability
An investment isn’t much of an investment if it loses money. Therefore, profitability is what ultimately makes high rise condos a good investment. Let’s ignore what the condo could be worth later and focus purely on rental revenue.
Profitability = Revenue – Expenses!
What do similar condos in the area rent for presently? The market ultimately determines the price, both for home valuations and for monthly rent. It’s key that you analyze what other similar properties rent for to determine what you could rents yours for, too.
Will that amount of rent cover your costs and then some? As said earlier, monthly HOA fees and taxes can be as high as the condo’s monthly mortgage. Will the rent you can charge cover these costs? Be sure to consider insurance premiums, too!
How long will it take to be truly profitable? Monthly profit is a beautiful thing, but it’s important to consider the amount of money required for a down payment – in this way, buying a condo is the same as buying a house. Down payment requirements will likely be 5% – 10% of the total price at minimum. How long will it take – i.e. how many profitable months – to gain back the amount of money you had to put down up front?
What do these similar condos and apartments look like? If you’ve got a two bedroom condo that’s a bit outdated, it will rent for a lot less than an updated, modern two bedroom. The exception to this rules is if your building is in a very good location. Even still, we must have a good understanding of our competition.
Read and thoroughly understand the HOA’s rules. Assuming the rules allow you, as the owner, to rent out the condo to someone else, are there restrictions? Is there an additional fee? Will your tenants have access to all amenities? You may have zero issues with any of these things, but you must know ahead of time.
Renovation expenses will come eventually. Whether it’s not or later, your condo will eventually require renovation. It is what it is; no real estate investor is exempt. The question really becomes this: how much will it cost to renovate/update, when will it be required and how much will it increase the value of the condo?
So, Are High Rise Apartments A Good Investment?
Ultimately, we cannot say! All condos are different, as are high rise buildings, locations and market conditions. There isn’t a cut-and-dry answer out there. The good new is that, by using the information we’ve outlined here, you can begin to analyze any condo on the market and make a reasonable judgement as to whether or not it’s got potential. The choice is ultimately yours. We hope this article has been helpful and informative.
