LATEST ON INVESTMENT: CHOOSING BETWEEN INVESTING IN A SINGLE FAMILY PROPERTY OR A CONDO

Now that the new year is here, it is expected that investors, particularly real estate investors will begin to ponder on what the best real estate investment for 2020 will be. With the various types of real estate properties to choose from, it is advisable to research maximally in order to make money from real estate investments.

Real estate investors might find it difficult in choosing which type of property to invest in. In this article, Investingport will be reviewing single-family and condo properties, the advantages and disadvantages of each of these properties, as well as their returns on investment. Perhaps, this information would help you draw useful conclusions on what kind of property to invest in. 

Single Family Property

A single-family property is a single and detached building that is completely separated from any other real estate property. These properties are residential, do not share any common area and do not require any form of community maintenance.

Condo property

A condo property is a type of investment that is contained in a multifamily housing unit or constructed as detached houses called a condominium. These kinds of properties are usually constructed as apartment buildings, could exist as separate units in a large residential building and each of the separate units has distinct owners and are sold individually.

Advantages and Disadvantages of investing in a single family property

Advantages of single family properties

1. Higher appreciation of the real estate

Real estate appreciation is one of the major benefits of investing in a single-family property. In this situation, an investor takes full responsibility for the maintenance and upgrading of the property, giving him or her an opportunity to increase the resale value of the property.

2. High degree of freedom

Single-family properties are associated with a very high degree of freedom, making it an advantage. As an investor in this type of property, you have the sole right to sublet the property to any individual that you deem fit, as well as managing the property in a way you are comfortable with.

3. Having to choose the right kind of tenants

Statistics have shown that condominiums are often hired by individuals within a very young age bracket, and this makes the property vulnerable to some degree of damage. However, the case is different with single-family properties, as the tenants are often young families who want to settle. This gives the investor a bit of assurance that the property will be well taken care of.

4. No restriction

Single-family home does not need HOA approval before leasing or selling the property. But most condos require that the building owner seek approval from HOA before listing the building on the market for rent or for sale.

Disadvantages of single family properties

1. The cost

To many investors, the cost is what hinders them from investing in single-family properties. Single-family properties are quite difficult to finance as a result of their initial property value. In comparison to condominium settings, maintaining and upgrading of single-family properties is more expensive.

2. Prolonged vacancy periods

Currently, there is a huge demand for condos and other smaller apartments, therefore, it might take a long period of time to find tenants to fill in the single-family property. Single-family houses being vacant for a long period of time could lead to negative cash flow for the investor. To prevent an extreme negative cash flow, it is advisable to invest in a few multifamily units rather than acquiring several single-family properties.

Advantages and Disadvantages of Condo properties

Advantages of condo properties

1. Affordability

Condos are described as one of the best real estate investments because they are more affordable than a single-family property. In the real estate markets, condos are cheaper, and investors who are new to real estate can begin their journey by investing in these properties before upgrading to a higher real estate investment plan.

2. Higher demand for condos in the market

Due to the increased working population in urban areas of the United States, it is safe to say that there is a higher demand for condos, at the same time generating a high and consistent return on investment to the investors.

3. Property Management and Maintenance

A major benefit of investing in condo properties is its management and maintenance. Condo properties are contained in multifamily units, thus sharing areas with other units. The job of maintaining these areas does not lie on the investor, rather they are done by community service providers. The only responsibility the investor or landlord has is investing in the condo unit and maintenance of the exterior areas of the property.

Disadvantages of condo properties

1. Difficulty in accessing real estate investment loans

Despite the fact that condos are quite affordable, they are difficult to finance when considering real estate investment loans. Accessing loans from mortgage lenders to invest in condos is usually not easy. Some mortgage lenders will either require a huge down payment or request that the investor occupies the property for a given time before being able to sublet it.

2. Rental restrictions

Rental restrictions are usually placed on condo properties. It is believed that the younger population who are often occupants (tenants)of condos make noise and cause damages to some areas of the house. As a result, investors usually seek counsel and consult other unit owners before subletting the property. Also, sometimes, the condo owner must seek approval from the Homeowner Association (HOA) office before listing the property on the market for leasing or for sale. When many units from the same condo community are on the market at the same time, it causes a drop in the value of the community. As a result, the HOA tries to regulate how many units come on the market at a time.

Returns on investment associated with single-family properties and condo properties

Real estate investors often consider appreciation potential before investing in properties. Single-family properties have a higher rate of appreciation due to the fact that people find it difficult to pay for a property with a higher sales price when they still have condo fees running. The homebuyers would rather invest the money in improving their desired home. Condos are easy to maintain and invest in, at the same time having intensions of the condo appreciating over time and being able to sell it in the future will lead to the realization of profit. While the annual cost involved in owning condo decreases often, owning a property whose value increases over time is an achievement.  

Investingport's analysis to give you an insight on which type of property to invest in:

For a single-family property

Assume I bought 3 single-family houses at the rate of $84,500, $82,500, and $80,000 respectively; and rented them out at $820, $600 and $450 respectively.

Total cost of properties: $247,500

Total rent: $1,870

Total expenses on the property for the month: $1,800

Net cash flow : $70 per month

However,

If current total value of the properties are: $500,000

Total rent received: $1,470

Expenses: $1,520

Current net loss: $50 per month

For Condo property

Buying 1 condo property comprising of a side by side duplex at $160,000; subletting at $1,700 per month with a monthly expense of $1,400;

Net cash flow will be: $300 per month

However,

If current value is $325,000

Rent is $2,500

Expenses: $1,970

Net cash flow will be: $530

So, as a real estate investor, you've got to make the right choice on which investment property works for you. Is it Single-family property or Condo property? Well, the choice is yours.