Should You Invest In A Condo Or A Single-Family House?
/Thinking about purchasing your first residential property? Congratulations! You probably have a lot of questions and one of those questions might be - should I buy a condo or a house?
Well, keep reading for some insights to help you figure out whether a condo or a house is the best fit for you. As you read this article, keep in mind that the information I share is general and real estate is very location-dependent.
The benefits of buying a condo
Before we dive deeper into the pros and cons of buying a condo, let’s get on the same page as to what exactly is a condo. I always pictured condos to be units in a high-rise building. But, condos are a form of ownership not a type of construction. While high-rise buildings are likely the common type of condos, they can also come in the form of townhouses, duplexes, or even single-detached houses.
Now that we know exactly what a condo is, let’s talk about some of the benefits of owning a condo.
Benefit #1: Low maintenance
In a condo, it is highly unlikely that you will be responsible for any upkeep on the exterior of your unit. Things like landscaping, snow plowing, roof repairs, fallen branches after a storm, exterior window cleaning are covered by the HOA (homeowners association). The monthly fees you pay to be a part of the condo community covers these types of maintenance fixes.
Tip: A rule of thumb to guide your purchasing is to check that the annual increase in the monthly maintenance fee does not exceed the general rate of inflation (about 2-3%).
Benefit #2: Amenities
If you are like me, I love luxury amenities where it feels as if I’m on vacation. Depending on the condo, these amenities could include a sauna, hot tubs, pools, business centers, and valet parking. And due to the first benefit mentioned, you are not responsible for the related maintenance.
Benefit #3: Community
Although neighborhoods of single-family homes also have a community aspect, you generally have more consistent opportunities to socialize when living in a condo. This could be picking up mail, social events put on by the HOA and/or management company, and community meetings to discuss matters related to the property.
The drawbacks of buying a condo
Drawback #1: Monthly fees
With the benefit of low maintenance, comes the drawback of monthly fees. What you save in time, you spend in money.
Outside of your monthly mortgage payment, there will be monthly association fees. You can think of these fees as membership dues that can range anywhere from $100 to $1,000+. These fees cover amenities such as grounds maintenance, security, and more.
Tip: Ask how much money is in the association’s reserve fund, or repair fund. This fund helps cover unforeseen expenses. Ideally, there is at least 10% of the annual revenue in the fund.
Drawback #2: Less privacy
Depending on the unit you choose, you may have a neighbor above you, below you, or very close to you. This means you can not play your music as loud as you may wish or when using the pool/communal areas, other condo owners may be using it at the same time.
Drawback #3: Less control
Condo associations can restrict certain activities, such as smoking or even barbecuing on balconies. Additionally, modifying the exterior - and sometimes the interior - requires consent from the association. Yes, you may own your condo, but you still need to get permission to do certain things. Violating these rules could result in fines or being removed.
The benefits of buying a single-family home
Benefit #1: Appreciation potential
Single-family homes tend to appreciate more than condos. This is, in part, because buyers can be turned off by the monthly fees associated with a condo. Homeowners may prefer to use that money to renovate their home to increase its value.
Benefit #2: Very few, if any, restrictions
When you own a single-family home, you have full reign over whatever changes you wish to make to the property. In some cases, there may be restrictions on landscaping and related exteriors to ensure that your home doesn’t diminish the value of the neighborhood, but for the most part, you can do whatever you want.
Benefit #3: Lots of space
A single-family home means you do not have to share your yard or worry about annoying the downstairs neighbor. Also, there is usually more room for storage on the property or through the basement.
The drawbacks of buying a single-family home
Drawback #1: Maintenance
The biggest drawback by far is that homes require much more work (and/or money) to maintain than a condo. This includes the yard and any repairs such as the roof, plumbing, and more.
Drawback #2: Higher utility costs
Generally speaking, the utility costs for a home are higher than a condo. This is simply due to the size of the house. Homes are usually larger than condos and need more energy to remain cool during the summers and warm during the winters, as well as more water usage.
Drawback #3: No built-in amenities
If you are looking to have a hot tub, sauna, pool, exercise facility on your property, you will need to invest the resources needed to make this happen. As opposed to a condo community that may have these included in the experience.
In conclusion
When it comes to choosing between investing in a condo or a single-family house, it truly comes down to personal preferences. Do you want low maintenance? Do you want to use your funds to renovate the home rather than pay monthly fees? Do you want a yard? If you take the time to reflect on what you truly want, you will be just fine.
Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
