For first-time buyers, trying to figure out which type of property to buy can feel daunting. It’s hard to know what’s going to jump out at you – whether it’s a condo, a free-standing house or a multi-family property. At a high level, there are some pros and cons to analyze before making your big move.
A Housing Unit with Shared Space: Calling a Condo Home
Some buyers think of condominiums as fun-size versions of houses. It’s true that in many cases they are smaller than your average freestanding home, but the main differences go beyond square footage.
The biggest draw when it comes to condos is usually pricing. If you’re targeting a specific neighborhood but cannot afford a single-family, a condo or townhouse may be the less costly option. In cities, condos can be a more economical and practical choice.
Another benefit of condo ownership is the shared expenses. You will become part of an association and together you and the other owners will pay fees to cover the maintenance of common areas and bills. Smaller associations are typically self-managed. This helps to keep the fees low, but it means the owners must ban together to make sure things are taken care of at the property. Most large complexes charge a premium because they are professionally managed, and some come with extra perks like a pool or fitness center. Talk about convenient!
Owning a condo isn’t all rainbows and butterflies. An important aspect to consider is the close quarters: You may literally be on top of your neighbors. What happens when the nice lady next-door winds up being as cranky as the wicked witch of the west?
If you’re targeting a specific neighborhood but cannot afford a single-family, a condo or townhouse may be the less costly option
Plus, you may not have as much control as you would like. Typically major capital improvement projects, like when to replace a roof or paint the halls, are decided through a voting process. At certain points you may be forced to compromise to appease the other owners.
Another touchy subject can be the condo rules. The regulations that govern how the association runs can feel restrictive. For instance, some places don’t allow you to turn your place into a rental and others are not pet-friendly (so you might have to leave your beloved pooch behind).
Buying Tip: Review the association fees, meeting minutes and budget, and understand the financial plan before signing a purchase and sale agreement. Don’t forget to read through the condo docs and rules and regulations with your attorney.
Free-Standing Residential Dwelling: Settling Into a Single-Family House
Ah, the American Dream: owning a single-family house with a white picket fence. For many buyers, settling down on a nice cul de sac to start a family is the ultimate goal. Perhaps you’re looking for a starter house or your hunting for your dream home. There are many options. One thing is for sure: A house offers you more privacy and likely more space than a condo.
What most people love about owning a house is the autonomy and ability to make changes. Want to blow out a wall? No need to run your architectural drawings up the association flagpole for approval. Plus, in general, when it comes to cashing out, single-family homes appreciate at a faster rate.
It’s especially important to have an expert assess a single-family home that hasn’t been inspected in many years.
But, single-families come with some drawbacks that are not dream-like.
As the sole homeowner, you’re on the hook for any and all repairs and improvements. A lot goes into keeping a home in tip-top shape, including landscaping, snow removal, exterior and interior maintenance – the list goes on and on. Plus, plan to budget for steeper utility bills to heat and cool a large area.
Buying Tip: It’s always wise to have a home inspection as a contingency of your offer. It’s especially important to have an expert assess a single-family home that hasn’t been inspected in many years.
Property with More Than One Living Unit: Making the Most of a Multi-Family Residence
How about buying a place with two, three or four units under one roof? Small residential multi-families can be a great investment for some home buyers. In this scenario, you would live in one of the units while renting out the other apartments. From a financial perspective, there’s quite an appeal. The rental income can help to offset or completely cover your mortgage payment. Eventually, once you’ve paid off your loan, the rents become a source of passive cash flow.
The hard truth is that being a landlord and managing property is not for the faint of heart.
Of course, if it were as easy as I just made it sound, everyone would be doing it. The hard truth is that being a landlord and managing property is not for the faint of heart. In addition to your regular homeownership responsibilities, you will need to familiarize yourself with a variety of other tasks related to running the real estate operation, including landlord/tenant laws and tax policies. It can be a demanding 24/7 job because you never know when the tenants are going to call with a housing emergency.
Buying Tip: If you’re thinking about purchasing a duplex, triplex or fourplex, it’s best to find a real estate agent and an attorney who are both experienced with these particular deals. They can help you to navigate the tenant situations and avoid common pitfalls as a first-time investor.