One of the most important decisions in real estate investing is what type of property to purchase. The process often leads to the question of single-family homes vs. condominiums. There are benefits and drawbacks to both options.
One of the glaring concerns about condominiums is the ever-present homeowners association. It is actually a valid point of concern. That said, a closer inspection of the two options will provide a more practical base for your decision.
Return on your investment is ultimately the most important factor in any investment decision. Single family homes have a lower cash income to cash invested return than their condominium counterparts. The difference can be significant over time depending on the properties in question. Running the numbers may show a two percent or higher deviation in favor of the condominium. The higher ROI is a plus for condominium owners.
Tenant turnover is one aspect of real estate investing and management you want to minimize. Re-renting your property costs time and money. Also, downtime between tenants is a liability. The key is to keep your tenants in the property as long as possible. Condos traditionally have a much higher tenant turnover than single-family homes. The difference is an average of 2 years vs. five years respectively.
The dreaded homeowners association can be the bane of an investor’s existence. However, their rules can also keep property values up and create a more desirable environment for tenants. That said, if you don’t research the HOA, or your tenants break rules a lot, you can have a problem on your hands. On the other hand, you must pick a single-family residence wisely. Otherwise, you can end up with the depreciation of your investment because of no regulations forcing surrounding homeowners to upkeep their properties.
Maintenance And Repairs
Maintenance and repairs are a huge difference between single-family homes and condominiums. For condos, exterior issues all fall to the HOA. In contrast, a single-family residence’s roof repairs, landscaping, and a long list of other issues will be your responsibility.
There is an assumption that single-family residences are more apt to increase in value than condominiums. This is not a fact that has solid evidence behind it. The rule of thumb is that property values overall increase based on the property values in the vicinity. Property appreciation is desirable. However, with real estate investing it makes more sense to shoot for higher cash flow.
How To Decide
Obviously, all real estate investment decisions should be made with careful consideration and research. Every property is unique. A condominium or a single family home is not immediately better or worse because of its designation. The real-life factors and numbers matter most.
It is easy to want to jump into your first or next deal quickly. Just remember these three points:
- – due diligence
- – speak to property owners
- – seek counsel of successful investors
Doing so can mean the difference between a great deal and a terrible investment.