Condo or house for first property?

Question

I’m a newbie and looking at what would be best, a single family or a condo?

What say the people who are the professionals at this?

Thanks!

Brad Hammond · Answer

Hey @Eric Miracle, good question, there are a lot of pros and cons to both.  I started out with condos and loved it but it depends on your goals.  Here are some things to think about.

1. What is your long term plan with the property?  Are you going to rent it out after you've lived there for a year?  A condo might pencil out better.

2. When looking at condos, find one with a low HOA and see what is covered.  Often times they cover water, sewer, trash, and roof.  In one of mine, the HOA offsets what I would normally need to pay for these due to economies of scale (dumpster vs. trash cans for example).

3. Condos don't appreciate as fast as SFHs do.  Since there are a lot more of them and they are not as unique, they take longer to sell as well.

4. Obviously condos are less expensive and require a lower downpayment.

5. Some condo's HOA have rules about if and how many rentals there can be in the community and if you can use FHA financing.

You will get a lot of people who write condos off because of the HOA but if you find one with low fees and fewer restrictions, you will be fine.  Usually these are smaller buildings.  Good luck and remember that neither is right or wrong, it depends on what is best for you.  Decission is better than inaction.

Brad Hammond · Answer

@Cole Britting, this is one strategy someone could use underneath the house hacking umbrella.  Doing this would allow you to get in with a lower downpayment (4%-5%) since it is your primary residence.  During the time you live there, you will get to know the condo and the community better and rehab/fix any issues that exist.  This time will also allow rents to increase (probably 2%-6%/year depending on your area) while your mortgage remains the same.  This isn't just for condos, it can be done with a single family home as well.

Jonathan Pliszka · Answer

Hi @Eric Miracle - Greetings from Gratz Park in Downtown Lexington! The big thing here will be the HOAs as many have significant rental restrictions, etc. For example, financing can be difficult if a certain percentage of a building is tenant occupied versus owner occupied. As a result, many HOAs put a rental cap in place. Anecdotally, but specific to Lexington, I haven't seen any condo opportunities that have made sense for me personally. Good luck!

Marlen Weber · Answer

Excellent advice, @Brad Hammond. Thanks for providing detailed information on each.

Jonathan Pliszka · Answer

@Eric Miracle MLS will never produce the best deals largely because you have a 6% realtor commission baked in. The best deals exist off-market, but those are obviously more difficult to find. I will say, I think the MLS gets a bad rap because people get  consumed with the idea of "getting a good deal" and often times never take any action, which is the important part. With that said, if I have clients looking to add to their real estate holdings and it catches my eye as being suitable for one of my clients, I'll pass it along regardless of the channel (i.e. MLS, wholesaler, etc.) For condos specifically, I think you would be hard pressed to find any off-market deal. Condo owners are keenly aware of the market value of their units because they often have recent comps right across the hall.

Eric Miracle · Answer

@Jonathan Pliszka

Hello!  That’s what I was seeing so far as well.  However, I was only looking at the MLS instead of anything else.

What are the best places to look for better deals?  Do you send these out for clients?

Cole Britting · Answer

Awesome, thank you so much for the info!

Cole Britting · Answer

Thanks for the write-up, it is very informative. In your first point you say that a condo may be better if you plan to live in it for a year and then rent it out. What is the reason for this?

Brad Hammond · Answer

Assessments could be an issue so make sure that your HOA is healthy, however, it is still a risk.  I have owned 3 condos over 12 years and had to pay one once.  It was about $1000 and they had a few different payment plans.  I don't think they are very common but as long as the HOA is healthy with strong reserves, it shouldn't matter.

Eric Miracle · Answer

@Brad Hammond

Thanks!  All very good points to think about.  It would be a straight rental property to buy and hold.  My curiosity with a condo was assessments and how worried I should be about them.

However, I like the lower entry cost for the first time rental.

I live in Lexington, KY, so ideally I would buy and rent until my kids go to college in 16/17 years.

Condo or house for first property?

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