If you’re planning to invest in real estate, you may be wondering whether a single-family home or a condo will provide the best return. Both have their pros and cons, but ultimately, it comes down to your personal preference, the market and the location.
There are several things to consider when deciding which option is best for your investment portfolio.
Condos have long been favored by investors because they’re low maintenance and affordable. The idea is to park your money in the property with the idea that it will appreciate over the years without you having to spend a fortune on maintenance. Ideally, you would sell the condo in the future for a substantial gain.
If you’re buying with the prospect of renting, the fair cash-on-cash investment return tends to be higher with a condo compared to a single-family home (4-7% vs. 3-5%).
Just keep in mind that in the future, when you decide to sell, you may not see the substantial gains you were hoping for. Many potential homebuyers would rather not pay a higher sales price and then pricey condo fees on top of that.
Of course, this doesn’t apply to every market. Myrtle Beach, a hotspot for condo investment, was the second-fastest growing metro area last year. A growing market means a healthy economy and, usually, higher real estate prices. Location has a significant effect on an investment property’s return and appreciation rate.
Tenant Turnover Rate
When renting property, tenant turnover rate is an important thing to consider and will have a direct impact on your income stream. Whenever a tenant leaves, it’s up to you to find a new one.
Finding a new tenant can be a lot of work. It means having to take calls, show the property, do a credit check, pay for advertising and draft a lease. Even if the previous tenant left the home in good shape, you’ll still need to make some minor repairs, like carpet cleaning and paint.
Apartment and condo units, unfortunately, have higher turnover rates (usually every other year). With single-family homes, tenants tend to stay longer.
Of course, if the condo community offers excellent amenities, your tenants may stay longer. And if you can target people who prefer condo living, you may boost your chances of a longer-term stay.
Maintenance and Repairs
One attractive selling point of a condo – aside from its lower price – is the fact that they are low maintenance. With a condo, you pay an association fee that covers the cost of maintaining the exterior of the building.
If there are problems with the roof, the association will take care of it. They take care of mowing the grass, too.
With a single-family home, you’ll be responsible for everything. That includes the home’s exterior, the lawn, the roof, painting, landscaping, etc.
It’s much less work owning and maintaining a condo.
Speaking of the association, condo owners pay a monthly HOA fee for maintenance of the building and grounds. It also covers maintenance of amenities, like pools and gyms (another nice perk of condo living).
But with an HOA, there are restrictions – some very strict. If your tenant breaks the rules, you’re the one that has to deal with the fallout.
That being said, these same rules are what help the community maintain its image.
These are just a few of the many things to consider when deciding whether to invest in a condo or single-family home. Both can offer great returns if the right opportunity presents itself.