Should you invest in a condo or single-family home?
We often work with first-time real estate investors, and many of them have been asking us if they should buy a single-family home or a condo—which is the better investment? The answer to that question depends in part on your particular situation. Today I’ll discuss two benefits and two risks associated with buying condos compared to buying single-family homes.
Here are the benefits to buying condos:
- Lower turnover costs. On average, condos are smaller than single-family homes and you’re not responsible for exterior repairs or maintenance. Because they’re smaller and you only need to handle interior repairs, you can get them ready to rent at a lower cost.
- The neighbors. Neighbors can sometimes be a pain, but when you’re a landlord, they’re often pretty helpful in watching your tenants. In my nearly 30 years of experience, I have yet to see a tenant set up something unsavory like a marijuana-growing operation or a drug house in a condo. That’s because their neighbors are too close, which isn’t always the case with single-family homes.
Now here are a couple of risks of buying condos:
- HOA special assessments. At some point, you’ll probably get a special assessment from the HOA. Most HOAs are not well-funded and they can’t withstand a large, one-time expense. When this happens, the board can vote to hit the owners with a large special assessment. I’ve seen this happen many times in the last five to 10 years. These assessments can often cost thousands of dollars per owner. If they don’t do that, your monthly dues might go up dramatically.
- HOA boards. HOA boards can be difficult to deal with, especially for investors. The board members are all owners, not tenants, and they want more owners to purchase there. Naturally, they’ll be less accommodating to investors than they would be for owners.
“There isn’t a right or wrong decision here.”
On the other hand, here are the benefits to owning a single-family rental home:
- Better long-term appreciation. This is a big one for investors. Historically speaking, homes will appreciate at a faster rate than condos.
- Strong rental demand. There’s almost always more demand for a rental home than a condo, and the people who rent homes tend to stay longer than those who rent condos. That means there will be less interruption to your rental income stream. Long vacancies can be big income-killers.
Here are the risks of buying a rental home:
- Landscaping. If you have expensive landscaping, you risk your tenant doing damage to it. There are ways to mitigate that risk, but it’s still a risk that can cost you a lot of money.
- Capital expenditures. You need to have a budget prepared for the house, which may one day need a new roof, air conditioning units, paint, and so on, which are all things you wouldn’t have to worry about with a condo.
When it comes to deciding whether to purchase a condo or single-family home to rent out, there’s not a right or wrong decision. Hopefully, these pros and cons help you decide which option is best for you given your current financial situation.
If you have any questions about buying investment properties or real estate in general, don’t hesitate to reach out to me. I’d love to help you.