Deciding Between A Condominium And A Single-Family House
The decision to purchase real estate is, arguably, one of the biggest decisions one will make in their lifetime. Before you purchase real estate, you must decide which type of property is the right choice. When purchasing residential real estate, the buyer generally has two options – a condominium (“Condo”) or a single-family house (“House”). While there are other types of property, such as co-ops and multifamily properties, this article will address the primary differences between residential condominiums and single-family houses and their respective advantages and disadvantages.
Whether to buy a Condo or House will depend on several factors, such as the purpose of the property (investment property or family home), the personal circumstances of the purchaser (age, marital status, familial status, etc.), and the buyer’s budget.
In most circumstances, a House is a better investment than a Condo. Houses tend to show more steady appreciation than a Condo and the appreciation is not offset by other factors out of the owner’s control. For example, while a Condo may show some appreciation over time, a significant portion of that appreciation may be abrogated by the annual costs of owning a Condo, such as the condo fees. There may be more than one association that requires payment of monthly dues. Depending upon the type of property and number of associations, the monthly condo fees could be quite high. For example, a condo building that is also part of a hotel project with a spa and other five-star amenities may have monthly condo fees that are several thousand dollars. Even modest condominiums with little to no amenities will often have condo fees that are $300 to $400 per month. If there is a necessary major repair to the condo building, the condo association can levy a special assessment that requires each unit owner to contribute toward the costs. Special assessments can range from a few thousand to tens of thousands of dollars depending on the reason for the assessment.
That brings us to the other advantage Houses have over Condos. There are no condo fees for Houses. That means that the owner will decide how and when to make repairs and improvements to their property and not be at the mercy of the condo board. While some Houses are subject to a homeowners’ association (HOA), the HOA fees are typically considerably less than condo fees for a comparable property. Another disadvantage of Condos is that there are often restrictions on renting the property. While some condo associations ban virtually any type of lease, most will allow long-term leases (one year or more). However, the condo association still has the right to approve or deny a particular tenant. Some condo associations will not permit short-term vacation rentals, which can severely limit an investors opportunity to monetize their Condo. In a House, the owner can generally rent their property for as short or long as they want and to whomever they want. While there are some rental restrictions enacted by HOA’s and certain municipalities (a forthcoming article topic), Houses are generally less restrictive with respect to leasing. The owner’s obligation to pay condo fees may also cut into any profits that are realized from leasing a Condo.
Houses are usually easier to resell than Condos. Each House is unique, often having been customized to some degree by its owner. Condos are more uniform and there are restrictions on what the owner can do to modify or customize them. When a Condo owner is trying to sell its unit, there may be several other identical units for sale in the same building making it difficult to get top dollar for theirs. Houses are widely recognized as being much more liquid assets than comparable Condos.
There are some situations where Condos can be better investments than Houses. Sometimes, if the market has declined, investors are able to purchase Condos for less than their original price or their assessed value. This is especially true when a seller bought the Condo preconstruction. If the market has declined in the years between the execution of the preconstruction contract and the closing of the transaction, the Condo will not even be worth the purchase price at closing and a savvy investor can pick it up for a bargain. Bulk sales, where several Condos are sold in a single lot, offer investors the means to buy several properties at below market rates. Bulk sales often occur when a lender forecloses on several units in the same building and is liquidating them to recover the money owed on the defaulted loans. Some condominium buildings only have a handful of units and sometimes they all come to market at the same time. If an investor is able to buy all the units, they will control the condo board and will be able to manage the costs of the association and not be subject to sudden increases in assessments. In general, though, the only investor to make substantial profits on Condos is the original developer and its partners.
Depending upon the individual, a Condo may be a better choice. Generally, Condos are less expensive than houses. A Condo of comparable size and location will be less than a House of the same caliber. Condos are attractive choices for many young or single persons due to the lower price, amenities, decreased responsibility for management and maintenance, and the sense of community that exists in a building with several hundred residents. Condos are often built in dense, urban areas allowing residents easy access to shopping, arts, and jobs. Condo residents typically have shorter commutes as compared to those living in suburban Houses. However, Houses offer more flexibility, freedom, and individualism.
When deciding what type of property to purchase, it is important to consider the above factors and consult with the appropriate professionals to analyze your unique situation and goals.