This is a common question in real estate investing: Is a condo or a single-family residence (SFR) better as an investment property? We didn’t want to just provide a list of pros and cons, because you’re probably looking for flat-out, direct answer. Well, we think we have one. SFRs are generally better investments but here’s why and how you can decide.
Condos are great – they’re usually in the best locations, offer great amenities and cater to people looking for a simple lifestyle. The main downside to condos is the HOA fees. Depending on the location, these fees can be as much as the mortgage payment and really hurt cash flow. The benefit to paying these fees is having maintenance and some insurance costs calculated in, which can relieve the landlord. However, if your condo decides to do a special assessment, that can impair the entire investment.
So, is paying the HOA fees worth the relief of not having to do deal with maintenance? I hesitate to say it, but it depends. If the HOA fees are just a couple of hundred dollars a month or year, then it’s worth it. But if you’re in area where the fees range from $500-$1,000/month, then it’s probably throwing money away. Fixing a SFR on a need-be basis is more likely to be a lot cheaper.
Which brings us to our next point, maintenance. Condos don’t require as much maintenance as SFRs, which means less costs for landlords. SFRs definitely require maintenance but the difference is tenants are more prone to take up property maintenance. Tenants of SFRs are prepared to do all the little things to upkeep the residence because they are likely to be long-term residents. Taking out the trash, mowing the lawn, and taking care of the washer and dryer to avoid laundromats are habits of long-term tenants. Hence, tenants of SFR take care of their property more, reducing the amount of maintenance and costs.
Next and most importantly, rental income. Condos are cheaper (selling prices) and can bring in significant rental income. On the other hand, it’s well-know that SFRs appreciate more because of the the land that is attached to the home. People aren’t willing to pay more for condos on top of the increasing condo fees. Another interesting point to keep in mind is, the higher an HOA fee, the lower the loan a buyer can qualify for, which can eliminate your opportunity to sell a condo later. Income is also affected by vacancies and condos tend to have higher vacancies than SFRs. Finally, depending on location, renting out individual bedrooms in SFRs could generate more income than an entire condo.
The last main advantage of SFRs is the amount of power a landlord has. With condos, there are bylaws that have to be followed. Furthermore, there are limits to the number of condos that can be rented out by owners as investment properties – which can take away your investment opportunity all together. Rent regulation also affects your ability to increase your income.
It’s imperative to remember that numbers are what count and are more important than any generalization made. For any investment property, calculate the cash flow using an investment property calculator and consult experienced investors. SFRs could be a better investment than a condo but sometimes multi-family units are better. If you’re able to purchase a small multi-family building, then you become the HOA and can make your own rules and own fees. Multi-family buildings can be the best option because of the ability to have a personal residence while having one or multiple income properties.
Among the other things to consider are your personal goals and financial situation. If you’re planning on eventually living in the investment property after renting it out for a while, then choosing between a SFR and a condo has to be based on your preferred lifestyle. Your budget also directs your property search; if you can’t afford a SFR, that doesn’t mean you shouldn’t consider investing in a townhouse or condo. The location also greatly contributes to the cash flow from condos.
Condos can be great investments, they just mean strategically working in extra costs. But finding the right condo means finding one with positive cash flow and low vacancy.
You can look for positive cash flow properties using Mashvisor’s predictive analytics.
What type of investment properties do you have? What are some other pros and cons of condos and SFRs? What type of investment has been more successful for you?