One question first-time investors ask a lot is about what kind of property should they buy? Should it be a condo, townhome or maybe a single-family home? Which is the better investment?
The Answer to that is: it depends on the situation and your investments goals and strategy.
In this blogpost we will explain two benefits and two risks for condos as well as for single family homes.
- The Benefits:
- Low Turnover Cost:
Simply because the square footage is smaller. Any renovation work (which often has to be done) like repaints, replacing the carpets, etc. On a smaller condo, it would cost much less as compared to a single-family home. So, the turnover costs are going to be lower on a condo.
- Watchful Neighbors:
Because neighbors are always watching, nothing illegal would take place in the property like having a marijuana growing facility or drug house. Now, that’s not always the case with single-family homes where instances in which marijuana growing facilities in the basement of homes were discovered. So, there is little more risk of not having the neighbors watching.
- Often times no outside maintenance required. Meaning more savings and cash-flow.
- The Risks:
- Special assessments by the HOA:
If the HOA decided they need to raise money, and that their HOA dues have not been sufficient enough to cover a large capital improvement project, then that group of owners can vote for special assessment. This is not uncommon, and it does happen. Suddenly, they will hit all the owners with a special assessment of anywhere from a couple bucks to a couple thousands of dollars, and the owner have to pay that.
- The HOA boards:
HOA boards are typically difficult to deal with as an investor because those HOA boards are made up of homeowners. They want to protect the value of the property, which is a good thing, but sometimes they can be very difficult to deal with on the investment side of things because they don’t want a lot of investors owning in their complex.
Single family homes:
- The Benefits:
1) Long Term Appreciation:
Historically speaking, however there are always exceptions, single family homes are going to appreciate at a faster rate compared to condos and townhomes.
2) Stronger Rental Demand:
There is always a stronger rental demand for a single-family home, as well as less turnover. Because if somebody is in a single-family home, they’re not going to be moving as often as those people who are in a condo or townhome. Simply because of the makeup of the individuals in the property. Single-family homes stay rented for longer periods of time, they have less turnover over an extended period of time as compared to a townhome.
- The Risks:
- Landscaping Risk:
If the single-family home has expensive or extensive landscaping, then the owners are risking the tenant doing damage, costing them, as the owners, a lot of money. The damage could be mitigated, but it’s a risk.
- Capital Expenses:
The expenses the owner has to be prepared for on a single-family home. The roof will need to be replaced eventually. The siding will need to be replaced eventually.
So, those are the things to consider. There is no right or wrong, rather it is about what is best for the investor.
If you want to talk more about this, call our office, we’ll be happy to look at your specific situation, and surely, we will help you decide which type of investment property is best for you.