The 1 bedroom condo is a popular choice among young people starting out who want to buy their first home. It is affordable and often located near urban centers, so it's a sensible and attractive option.
But how is it as an investment property? Well, I own a handful of them and can say with confidence that they can make great investments. All of them have positive cash flow, have risen in value significantly, and are often easier to rent out than my larger properties
Before we start, I am working under the assumption that you know what a condo is, but if you don't and you want to learn more about them, check out my broader article discussing condo investing here.
For purposes of this article, I am assuming that the 1 bedroom condo you purchase is in a good neighborhood and includes the types of amenities and features that condos typically offer.
Just like any other investment, there are drawbacks and risks you need to consider before buying a 1 bedroom condo, but we will get into that later.
First, let’s go through why these underappreciated gems are so great.
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The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
Why 1 Bedroom Condos Can Be Great Investments
1 Bedroom Condos Are Affordable
Condos are typically cheaper than townhouses and single-family homes. And 1 bedroom condos are among the cheapest of all.
That means your down payment is just a fraction of what you would need for other investment properties. You can get into the game earlier and that means you can capture potentially years of cash flow and appreciation that you may have otherwise missed.
The affordability of 1 bedroom condos makes them a great choice for beginner investors and anyone who wants to acquire a portfolio of properties quickly.
Now I recognize that even with the lower price point, getting that down payment can be a challenge.
If you need help getting that down payment in place, I have a ton of great tips of how to set up the right account, jump start your savings (with basically no effort) and keep the savings rolling with passive income streams that actually work and don’t require any money or knowledge to set up.
Check out my article on how to get started investing in condos for all of that and more.
1 Bedroom Condos Can Cash Flow Easily
A 1bedroom condo’s affordability leads directly to its ability to cash flow better.
Cash flow is rent minus expenses – basically what you have left from your rent check after you pay your mortgage, property taxes, HOA fees, and any other related expenses.
The reason why 1 bedroom condos tend to have better cash flow is because of the price-to-rent ratio. On a million-dollar house, your mortgage and other costs are really high, so you need a high rent to support that. But often rents can’t keep pace as you go higher in price.
In contrast, 1 bedroom condos in nice areas are usually in the sweet spot of cash flow because they have low fixed costs, but strong rental demand, which drives up rents.
Let’s go through an actual example of this.
I just pulled the following information from Zillow for my neighborhood. The “Typical Zestimate” cited by Zillow for homes in my area is $562,438. I found a three-bedroom townhouse that fits the bill. I also found a 1 bedroom condo for $205,000. To round it out, I located a 5 bedroom single family home for $999,990.
The chart below shows the numbers (all of which were provided by Zillow, except for the Cash Flow calculation).
|Property Type||Price||Rent Zestimate||Estimated Payment||Cash Flow|
|5 Bedroom Single Family||$999,990||$3,504||$4,513||-$1,009|
|3 Bedroom Townhouse||$549,900||$2,600||$2,473||+$127|
|1 Bedroom Condo||$205,000||$1,400||$1,195 (HOA incl.)||+$205|
As you can see, the cash flow numbers get worse as prices rise (and really seem to nosedive when you get to the very high price points).
Now I know what you are thinking – this is just one example. That’s true, and your neighborhood may have different price to rent ratios. But when talking to other investors and observing the real estate markets in different parts of the country, I have seen this pattern emerge time and again.
But I encourage you to test it out and see if this dynamic plays out in your neighborhood.
1 Bedroom Condos Can Appreciate in Value
Condos, like other types of real estate, can appreciate over time. But a common knock against condos is that they appreciate less than single-family homes.
While that may have been generally been true in the past, a Washington Post article in 2017 seems to show a reversing of that dynamic.
Regardless of overall trends, the value of any property is going to be based on supply and demand. The 1 bedroom condo is no different.
If a condo is in a hot location and the lifestyle afforded by that condo is coveted by buyers in that area, it will skyrocket in price. If it’s poorly located or has other undesirable features it will have a much harder time going up in value.
If you want a better sense of how a 1 bedroom condo will appreciate, I think Zillow can be a great resource (again). When you pull up a given property, it includes a graph showing how Zestimates have gone up or down for that property over time.
You can also get past sales info for that property. This will give you concrete numbers on what the property sold for in the past. You can compare that to what it is worth today and get a sense of how the property has appreciated over time.
If you are working with a real estate agent, they also have access to really good data on past sales for your target property and other 1 bedroom condos in the community (called sales comps).
1 Bedroom Condos Can Be Long-Term Rentals Or Listed On AirBnb
We have been talking about the benefits of renting out a 1 bedroom condo to a long-term tenant, but that is not the only profitable option. In fact, 1 bedroom condos can be a perfect fit for providing short term guest rentals through Airbnb.
The cash flow using this strategy can far exceed the cash you get for long-term rentals if the condo is in an area that supports a robust Airbnb market.
If you are intrigued by this option, I wrote an entire article devoted to this strategy – it's got a ton of information on how to get started.
One great resource for analyzing whether your 1 bedroom condo should be a long term rental or listed on Airbnb is Mashvisor.
They allow you to search a city and immediately get an overview of the investment potential. You can pull Airbnb occupancy rates for the neighborhood and average cash on cash returns for traditional rental investing vs. Airbnb.
You can also get rental comps for both Airbnb and regular rentals. It's a powerful tool.
If you are interested, you can use promo code AFF15 for a 7-day free trial of Mashvisor in addition to a 15% discount forever on subscriptions to any Mashvisor plan. Click below to take advantage of this offer.
Here are some of the unique advantages that 1 bedroom condos offer to Airbnb guests:
- Due to low fixed costs, you can undercut hotel prices and still make a nice profit
- Compared to a hotel room, a 1 bedroom condo can offer more space, a full kitchen, a full range of appliances, and free parking.
- Condos are often centrally located and readily accessible to city centers.
- Condos typically offer great amenities (pools, fitness centers, etc.)
Bear in mind that using Airbnb requires more active management of your property because you are constantly having new people coming into your unit. But you can usually find a company that will handle most of the heavy lifting for you.
Before going down this path, you should ensure that the condo association rules allow this type of activity and that you are not violating any local rules by doing so.
1 Bedroom Condo Amenities and Locations Are Attractive To Tenants
Condos usually come with a host of amenities that single-family homes do not. Typical amenities include a pool, clubhouse, and fitness center. Many also have basketball courts, tennis courts (one of my condos even has discounts for residents on a golf course that is next to the community).
They also tend to be located in (or near) urban areas.
In my experience, this combination of location and amenities is perfectly designed to attract the types of tenants looking for a smaller space. This results in lower vacancy rates, which means greater profit for you.
1 Bedroom Condos Require Less Maintenance
As a condo owner, you generally do not need to worry about exterior property maintenance and repairs. If expensive items like the roof or siding need to be replaced, the condo association typically takes care of that. The same holds for landscaping, snow and trash removal, and maintenance of common areas.
It’s worth noting that these benefits are not free. You pay HOA fees that cover these and other expenses. We will discuss HOA fees later on.
You typically just need to maintain appliances and systems within the four walls of your unit. And because you own a smaller space, your costs for flooring, windows, paint, and almost everything else is less than it would be for a larger property.
That makes owning a condo cheaper and much less of a hassle than a townhouse or single-family home.
As a bonus, I have found that the insurance policies for 1 bedroom condos tend to be dramatically cheaper than policies for townhouses or single-family homes because no roof or exterior coverage is needed.
Benefits Shared With Other Rental Property Types
I have focused on benefits that are unique to 1 bedroom condos vs. other dwelling types, but condos also have additional benefits that are shared across housing types.
They include tax breaks, amplified returns through leverage, and the fact that your mortgage is being paid down by your tenants. I go into greater depth on these and other benefits of rental property investing in this article.
Drawbacks of 1 Bedroom Condos
The biggest drawbacks of investing in one bedroom condos include HOA fees, special assessments, condo association rules that may limit rental activity, condo association mismanagement, and possible difficulty selling when compared to larger properties.
1 Bedroom Condos Have HOA Fees
Remember earlier when we discussed how you don’t need to worry about exterior maintenance? Well, that comes with a cost. Each condo owner must pay HOA fees to the condo association to cover the cost of maintaining exteriors, common areas, and the community in general.
The condo association may also require owners to pay special assessments if the association needs to pay for a large expenditure. In an ideal situation, the condo should have been reserving for such large expenses out of the HOA fees they collected over time, but that does not always happen.
You should carefully examine the condo association documents before you buy to figure out if their reserves are adequate.
Condos Have Association Rules
As mentioned above, you should carefully read the condo association documents, including the covenants, conditions, and restrictions (CCRs for short). Watch out for any limitations on renting out your unit. Some associations allow you to rent the unit but impose lease requirements that you may not like.
While the condo association rules can work in your favor by preventing unwanted behavior by your tenants and other residents, you should carefully read the CCRs to understand what you are signing up for and whether they conflict with your investment goals.
Some Condo Associations May Be Mismanaged
The condo association has a governing body that often consists of volunteer board members who are residents. As with any collection of individuals, you run the risk of incompetence or worse, which could lead to mismanagement of the condo association’s funds.
While you can’t fully protect against this risk, you should examine the condo documents and financials before buying to see if there are any red flags.
You may also want to talk with residents about how the condo association is managed.
1 Bedroom Condos May Be Harder to Sell
You may have a harder time selling a 1 bedroom condo because it might not appeal to larger families or groups. I haven't really observed this personally, but it is a common refrain that you hear about 1 bedroom condos.
But even if true, the trade-off is that you will probably have an easier time renting that property out because there always seems to be tenant demand for low-priced living spaces offering rich amenities.
If you are worried about this issue, ask your real estate agent to pull sales comps (as mentioned before, these show historical sales prices for relevant condo units in your community). Look at the “Days on Market” (DOM) for those comps. Also, check out how often and how deeply the seller cut prices before they sold the unit.
The longer the DOM and the more price reductions you see on a listing, the more difficult it was to sell that property. This info should give you a pretty good sense of how well (or poorly) the 1 bedroom condos in your targeted community have sold in the past.
Before buying a one bedroom condo you should ask about the “owner-occupancy rate.” This is a rate that shows how many of the condos are occupied by owners vs. renters. I always pay attention to this rate before I buy.
As you can imagine, I prefer condos with a high owner-occupancy rate because owners generally have stronger incentives to maintain the quality of their community. This leads to a more desirable living community, which in turn leads to higher rents and rising property values.
If the owner-occupancy rate is below 50%, you may have problems financing the condo, so you should learn the owner-occupancy rate as soon as possible.
If you are looking for strong cash flow and a lower price point to start investing, 1 bedroom condos may be for you. They can be attractive to both renters and Airbnb guests, which gives you versatility in how you can make money.
On top of that, the smaller living area and lower maintenance requirements should ease the burden of managing the property.
There are some risks with investing in 1 bedroom condos, but through proper due diligence (including a careful review of the condo association documents) and smart planning, you should be able to navigate through them.
If you'd like to avoid some of these risks but are intrigued by real estate investment, consider online crowdfunding, which is a maintenance-free option that some consider to be a safer investment.
DiversyFund, for example, lets you invest in a diversified basket of real estate investments with an initial investment of as low as $500.