Condo vs. apartment: What's the difference for real estate investors?

Not every real estate investor will want to buy a single-family home. There are plenty of other dwellings for investors, but when people turn to condos vs apartments, many fundamentally misunderstand the difference.

While these two terms are often used interchangeably in casual conversation, they represent distinct property types with different ownership structures, investment requirements, and cash flow potential. Most investors looking to purchase an individual rental unit will be buying a condo, since apartments are typically sold as entire buildings rather than individual units. In contrast, most apartment buildings are owned by large landlord companies, as there is a much higher financial barrier to entry (and much more significant management responsibilities).

Whether you're weighing your first rental property purchase or expanding an existing portfolio, knowing how condominiums and apartment buildings compare can help you identify which option aligns better with your investment goals, budget, and management preferences.

Ownership structure: The fundamental difference

The primary distinction between a condo and an apartment comes down to ownership. A condominium is a type of property ownership where you own the individual unit itself, while apartments are typically owned as part of a larger multi-unit building.

When you purchase a condo, you receive a deed to your specific unit along with shared ownership of common areas like hallways, amenities, and exterior spaces. You're essentially buying real estate within a larger community structure. This makes condos the go-to option for investors who want to own and rent out a single unit without purchasing an entire building.

In contrast, apartment buildings are usually owned by a single entity, whether that's an individual investor, partnership, or real estate investment company who controls all units within the building. Most early-stage investors begin with individual condo units before scaling up to multi-unit or apartment building purchases.

This ownership model fundamentally shapes everything from how you finance the property to how you manage it day-to-day. As a condo owner, you're subject to the rules and regulations of a homeowners association (HOA), while apartment building owners have greater autonomy over property decisions.

Purchase process and investment requirements

Buying a condo

For investors looking to purchase an individual rental unit, condos are typically the only option available, since apartment units are rarely sold separately from the building. Purchasing a condo for investment purposes follows a process similar to buying a single-family home, but with additional considerations. You'll work with a real estate agent, secure financing through a mortgage lender, and complete standard closing procedures. However, lenders often require higher down payments for investment condos, typically 20-25% compared to 15-20% for owner-occupied units.

The condo association will also scrutinize your purchase. Many HOAs require board approval before a sale can proceed, and they may have restrictions on the percentage of units that can be rentals. Some associations prohibit rentals entirely or limit rental periods, which can significantly impact your investment strategy. Before making an offer, review the association's bylaws, financial statements, and rental restrictions carefully.

Buying an apartment building

Acquiring an apartment building represents a significant scale-up from individual unit ownership and typically requires substantial capital. Depending on the size and location, you might be looking at purchases ranging from hundreds of thousands to millions of dollars. Many investors build experience with one or more condo units before taking on the complexity and financial commitment of an entire building.

Financing options differ as well. While smaller multi-unit properties (2-4 units) may qualify for residential mortgages, larger apartment buildings usually require commercial loans with different terms, rates, and qualification criteria.

The purchase process is more complex than buying a condo. You'll conduct extensive due diligence, including property inspections, reviewing tenant leases, analyzing operating expenses, and evaluating the property's income history. However, once you own the building, you have complete control over operations, rent pricing, and property improvements.

Legal considerations and restrictions

Condo association rules

As a condo investor, you're bound by the HOA's covenants, conditions, and restrictions (CC&Rs). These rules can significantly impact your ability to generate rental income. Common restrictions include:

• Limits on the percentage of units that can be rented (some associations cap rentals at 20-30% of total units)
• Minimum lease terms (often requiring leases of 6-12 months or longer)
• Guest policies and short-term rental prohibitions
• Restrictions on modifications or improvements to your unit
• Rules about screening tenants or setting rental criteria

HOA rules can also change over time. An association that currently allows rentals might vote to restrict them in the future, potentially limiting your exit strategy or forcing you to sell. Before investing, obtain copies of all governing documents and understand how rule changes are implemented.

Apartment building regulations

Apartment building owners must comply with federal, state, and local landlord-tenant laws, but they have more flexibility in setting property policies. You'll need to adhere to Fair Housing laws, local building codes, health and safety requirements, and state-specific regulations regarding security deposits, evictions, and tenant rights.

However, you're not subject to an HOA's discretion. You can set your own rental criteria, modify your property as needed (within code requirements), and adjust your business model without seeking approval from a board.

Financial considerations and cash flow

Condo investment costs

Beyond your mortgage payment, condo ownership comes with mandatory HOA fees that can range from a few hundred to over a thousand dollars monthly. These fees typically cover maintenance of common areas, the building's master insurance policy, amenities, and sometimes utilities. While these costs reduce your cash flow, they also mean you're not responsible for exterior maintenance, landscaping, or major building repairs.

As an investor, you'll still need to secure your own landlord insurance coverage for your unit and liability protection, since the HOA's master policy covers the building structure but not your investment interests or rental operations.

Your rental income potential with a condo is limited to a single unit. If your unit sits vacant, you have no other income stream to offset your expenses, making vacancy particularly costly. Condo associations may also impose special assessments for major repairs, which can range from a few thousand to tens of thousands of dollars.

Apartment building cash flow

Apartment buildings offer economies of scale. While you have higher upfront costs and ongoing maintenance responsibilities, you're collecting rent from multiple units. If one unit is vacant, others continue generating income to cover operating expenses, providing a buffer against vacancy risk.

Operating expenses include property taxes, landlord insurance coverage, utilities, maintenance, repairs, and potentially property management fees. Landlord liability coverage becomes especially important when you own a multi-unit building, as your exposure increases with more tenants and common areas. Unlike condos, you're responsible for all building maintenance but also control when and how improvements are made.

The cash flow potential tends to be stronger with apartment buildings once you account for multiple income streams. A well-managed small apartment building can generate significantly more monthly net income than a single condo, though the initial investment and management commitment are considerably higher.

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Property management and time commitment

Managing a condo rental

Condo rentals offer a relatively hands-off investment experience. The HOA handles exterior maintenance, common area upkeep, and often provides amenities like pools, gyms, and parking management. Your responsibilities focus on your individual unit: tenant maintenance requests, lease management, rent collection, and unit-specific repairs.

This makes condos attractive for investors who want rental income without intensive property management duties, or for those who live far from their investment property. However, you're paying HOA fees for services you might prefer to handle yourself.

Managing an apartment building

Apartment building ownership requires more active management. You're responsible for maintaining the entire property, including landscaping, parking lot maintenance, building repairs, and coordinating with multiple tenants. For buildings with more than a few units, many investors hire professional property management companies, which typically charge 8-12% of collected rent.

The time commitment scales with property size. A duplex or fourplex might be manageable for a hands-on investor, while larger buildings typically require professional management.

Appreciation and long-term value

Condo appreciation

Condo values typically appreciate more slowly than single-family homes in the same market, though this varies by location. Your property's value is influenced by factors largely outside your control: the HOA's financial health, building maintenance standards, and the overall condo market in your area.

If the HOA defers maintenance or faces financial difficulties, property values can decline even in strong real estate markets. Conversely, well-managed associations with desirable amenities can enhance property values beyond what individual unit improvements would achieve.

Apartment building value

Apartment building valuation is closely tied to income performance. Unlike condos, which are valued similarly to residential properties, apartment buildings are evaluated based on their net operating income (NOI) and prevailing cap rates. This means you can directly influence your property's value through strategic rent increases, expense reduction, and property improvements.

This income-based valuation model means successful management can build equity faster than market appreciation alone. By improving operations, you're actively building value rather than relying primarily on market forces.

Financing and investment flexibility

Condo financing generally resembles residential mortgages, with conventional loans, FHA options (for owner-occupied units), and standard terms. However, lenders scrutinize the HOA's financial health, rental ratios, and legal status. If an association has too many investor-owned units, is involved in litigation, or has inadequate reserves, securing financing can be challenging.

Apartment building financing typically requires commercial loans for properties beyond four units, which come with higher interest rates, shorter amortization periods, and stricter qualification criteria. However, lenders evaluate the property's income-generating potential alongside your financial qualifications.

Tax implications

Both condos and apartment buildings offer tax benefits common to rental properties, including deductions for mortgage interest, property taxes, landlord insurance coverage, and depreciation. However, apartment building owners can deduct all operating expenses directly, while condo owners pay many expenses through HOA fees, which are deductible but may not be optimized for tax purposes.

The depreciation benefit can be more substantial with apartment buildings since you're depreciating the entire building structure, not just a single unit.

Which investment is right for you?

The choice between investing in a condo versus an apartment building ultimately depends on your investment capital, risk tolerance, management capacity, and long-term goals.

Condos typically make sense for investors who:

• Are purchasing their first rental property or looking to own an individual unit
• Have limited capital for a full building purchase
• Prefer lower-maintenance investment options
• Want to invest in high-cost markets where apartment buildings are prohibitively expensive
• Are comfortable with HOA restrictions and fees
• Seek a more passive income approach

Apartment buildings tend to be better suited for investors who:

• Have built experience with individual rental units and are ready to scale up
• Have substantial capital or can partner with other investors
• Want greater control over property management and operations
• Are seeking stronger cash flow potential through multiple units
• Can dedicate time to property management or can afford professional management
• Want the ability to build value through strategic improvements and operational efficiency

Many successful real estate investors start with one or two condo units to build experience and capital before eventually transitioning to multi-unit or apartment building ownership. Both investment types can build wealth over time, but they suit different investor profiles and stages of your investment journey.

Before making a purchase decision, run detailed financial projections, consult with real estate professionals familiar with your target market, and carefully evaluate the specific property's potential against your investment criteria. Whether you're starting with a condo or ready to purchase an apartment building, informed decision-making based on your circumstances will set you up for long-term success in rental property investing.

And don't forget to buy comprehensive rental property protection for your rental; Steadily provides comprehensive landlord insurance for a variety of dwellings.