Are Condos in Urban Centers a Smart Choice for Investors?
The city is abuzz with energy, endless amenities, and the property is expected to grow financially. Urban condos seem like the ideal choice because not only are they great to live in, but they’re also a fantastic investment.
Or… Are they? To respond to such questions effectively, you need to dig deeper and consider factors such as rental yields and associated capital appreciation of such properties, as well as the level of risk associated with the market.
Let’s break all of this down.
3 Things to Think About When Investing in an Urban Condo
Investing in something like condos can either take money from you or make it for you. How do you know what you’re in for?
1. Rental Yields
Here’s how Jon explained this to one of our clients: “This is a really important factor to consider because it indicates how much income a property can generate relative to the price you’ve bought it for. If you want a constant cash flow, rental yields will help you determine how profitable it would be to rent out the condo.”
Most urban condos can attract tenants because they want to be near workplaces, educational institutions, and other amenities. Check the typical rental rates in the neighborhood and compare them with the condo’s value before calculating the expected income from it.
Also, a great idea is to check other areas of the same town, to compare prices, and better determine the rent yield (since you also want to stay competitive, and not have the place vacant for extended periods.
Philadelphia (Pennsylvania) Average Condo Prices
| Part of the City | Average Condo Value (in USD) | Average Rent for 1-Bedroom (in USD) | Average Rent for 2-Bedroom (in USD) |
| City Center | 400,000 | 2,000 | 2,500 |
| North Philly | 180,000 | 1,100 | 1,400 |
| Northeast Philly | 200,000 | 1,200 | 1,500 |
| South Philly | 250,000 | 1,500 | 1,800 |
| West Philly | 220,000 | 1.300 | 1,600 |
If you live in Kensington, you’ll be able to rent a 1-bedroom condo for about $1,100 per month, while the same 1-bedroom condo in Queen Village you’ll be able to rent out for approximately $1,500. Rittenhouse Square Condos will get you quite a bit more since they are in the high-demand Center City area of Philadelphia, where you can rent the condo for upwards of $2,000.
2. Appreciation Rates
When it comes to investing, consider factors such as appreciation. Urban condos often appreciate faster than suburban homes because there’s always demand for them, and the cities don’t have as much space as suburbs do.
Look for areas with strong economic growth and features that include parks and new transportation.
3. Market Stability
Market stability means long-term reliability. A stable market means there’s a steady rental demand, as well as property values, so there’s less risk of investing.
Generally, cities are more stable than suburbs or rural areas because they attract homebuyers. Urban centers maintain their value even during economic downturns because of job opportunities and a consistent influx of people.
Investing in Urban Condos: Yes or No?
Nothing in life is ever 100% safe, including your investments. There are upsides and downsides.
Upsides
- Recurring passive income
- Property appreciation over time.
- Portfolio growth.
Downsides
- Higher initial investment.
- Mandatory Homeowners Association fees.
- Maintenance and potential upgrades.
- Market situation.Less rental demand in some areas.
The Future of Condos in Urban Areas
Purchasing an urban condominium can offer enhanced financial returns, but it is rather complicated. Broadly speaking, they are a healthy speculation, but only when a few vital aspects are addressed, and the entire investment is well-schematized.
Don’t rush your investments, and it’ll (likely) pay off. Do it haphazardly, and you’re risking losing money.
There is no clear-cut answer to such issues. Still, if you’re intimately familiar with the potential of a given neighborhood, the correct way of calculating returns, and how to read and forecast the market, you should expect success.
It’s not a sure bet, of course, but when has anything ever been without risk? And when it comes to investing, if you’re not embracing risk, then you (probably) shouldn’t mess with investments anyway.
