If you’re thinking about becoming a real estate investor, there are many different types of housing, including detached condominiums. However, if you want to maximize your return on investment, you must understand the real estate market and your options.
This post will look at detached condominiums, which are an opportunity for rental income that not too many investors consider. By the time you’ve got to the end, you’ll have all the information you need to help you decide whether it’s a suitable investment for you.
Related: Buying a Condo to Rent in 7 East Steps
What is a Condo?
Also known as a condominium, a condo is a residential or housing complex made up of individual units. Each of the units is separately owned.
Each condo owner is responsible for what goes on within their unit, including repairs and maintenance. On top of that, the owner also has to pay regular fees to a condo association. The fees cover maintenance of the shared areas, building amenities, and the upkeep of the complex exterior.
Pros of a Condo
- Additional amenities
- Less maintenance
- Affordable housing option
- Urban location
Cons of a Condo
- More regulations
- No privacy
- Less square footage
- Difficult to sell
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What is a Detached Condo?
A detached condominium is a stand-alone condominium that is similar to a single-family home. It’s legally classified as a condominium and offers the traditional benefits of condominium living. You’ll generally find them clustered together in communities located close to cities. There is usually a community with homeowner associations.
Detached condos are known by several names, such as free-standing condos and ground condos. Unlike a single-family home, the buyer of this type of property doesn’t have to worry about exterior maintenance chores. While individual owners are responsible for interior issues, exterior building maintenance is typically the condo association’s responsibility. Such tasks might include roof repairs, painting, and grass cutting.
Detached condominiums vary considerably. Some are small, such as a two-bedroom cottage-style property. On the other hand, a detached condo might be a large luxury home of more than 2,400 square feet. It’s not unusual for individual detached condos to look very similar or identical on the outside. However, some communities allow respective owners much more stylistic freedom.
A detached condo has no attached walls with another unit. While it might stand alone, it still shares the same advantages of condominium living, which we’ll look at next. An example of detached condos is zero-lot-line homes.
Related: The 15 Best Places to Buy a Condo for Investment in the US
Detached Condo: Pros and Cons
Like any other property in the real estate market, detached condominiums have their advantages and disadvantages.
Pros
- More affordable: Compared to many other property investments, detached condos are more affordable.
- Less maintenance: For those who want the freedom of owning a property but don’t want the worry of the upkeep that comes with it, a condo is a popular choice. If you don’t want to worry about mowing the lawn, repairing the roof, or shoveling snow, a condo might be a good fit.
- Improved amenities: People who live in the condo community will have access to various amenities in and around the development. A stand-alone condo will often have some of the best amenities very near and close at hand. These amenities might include a gym, party room, swimming pool, dog park, parking garages, and much more. Quite often, there will be a fitness center which means there’s no need to travel for anyone who wants to keep themselves fit.
- Added security: Families and renters, in general, find condos to be a much safer option. More people live in the location, and it’s much easier to get help if needed.
- Better location: Detached condo communities are often located in some of the best city neighborhoods, close to major attractions, education facilities, restaurants, retail stores, and services.
- Improved commute: Commuting to other parts of the city tends to be hassle-free.
Cons
- Same rules for everyone: While living by a set of rules should be considered a benefit, not everyone likes to follow the same path as everyone else. Owners of detached apartment homes and detached condos have to follow the rules set by the HOA. These might include pet restrictions and rental limitations. You also have to pay monthly HOA fees to cover the upkeep of common areas and buildings. These fees vary considerably depending on the size of the condo and its location.
- Tightly packed living: In some cases, condo living can feel very claustrophobic and packed in.
- Less privacy: Common areas have to be shared between condo owners. While this might increase the feeling of community, it also means a lack of privacy. Shared spaces can also have noise issues.
As you can see, the perks far outweigh the downsides, but nevertheless, condo living or investing in this type of property is a personal choice.
Related: What is an Alienation Clause in Real Estate?
Detached Condo vs. House
If you want to purchase an investment property outside the city center, a single-family home will generally cost more than a condo. However, that doesn’t always put people off making such a purchase. Houses are often chosen for the following reasons:
- Cost: In general, a detached single-family home will cost more than a condo. They will also have more square footage because you own both the property and any land it sits on. However, with such a benefit, you must take into account additional costs such as property taxes and yard maintenance.
- Ownership: A house is a free-standing structure just like a detached condo and doesn’t share any walls with other commercial or residential buildings. However, the difference is that the owner of a house owns both the property and the land it sits on and surrounds it. Such land might include a garage, front and back yard.
- Responsibilities and rules: Purchasing a house allows for a certain amount of autonomy. There might not be any HOA regulations associated with owning a home. There will be no limits as to how you modify the internal and external elements of the property.
- Maintenance: When you buy a house, there is significantly more maintenance you’ll need to take care of. Not only are you responsible for the property, but you also have to maintain the lot as well. Of course, any renovations you undertake will increase the value of the house with sweat equity. However, you mustn’t forget to consider the initial investment of money and time.
- Amenities: It’s not usual for single-family homes to come with any additional amenities. A condo, on the other hand, might include gyms and pools. Of course, you’ll have to pay condo association fees for such privileges, but the fees might also cover exterior maintenance and utilities.
Other Types of Condominium
Basically, there are two primary types of condos: leasehold and freehold.
- Leasehold condo: The tenant has a contract with the landlord rather than owning the unit outright.
- Freehold condo: The unit is owned outright by the purchaser of the detached condo.
The individual condo units can make up one building, or in the case of a detached condo, a complex of several freestanding buildings in a condo community. We’ve already explored detached condos. Let’s look at the other condo options and see how ownership varies.
Condo Home
A standard condo home is a residential property in which the owner only owns part of the building that makes up the interior of the house. This is different from a standard single-family residence in which the owner owns the dwelling and the property it’s located in.
Condo Share
A condo share or timeshare is often used as a vacation home or second home. People who purchase this type of condo are allocated its use for a specific time and number of days each year.
With a condo share, you’ll have fees like maintenance and property taxes to pay. They’re not usually considered investment properties. Selling one of these can be challenging, but you’ll have more luck offering it in desired locations for a fraction of the cost of staying in a hotel or resort during the vacation.
Private Own Apartment or Private Condo
The owner of a private condo or private own apartment is usually the unit’s landlord. They are rented out to tenants but are slightly different from a standard apartment. There is a massive variation with this type of rental condo in terms of the application process, deposits, and criteria.
Condo Building
A condo building is commonly a complex that’s made up of individually owned units. The ownership of these units is controlled by community property management or an HOA. The HOA or management is responsible for the upkeep and maintenance of the property.
Condominium Development
With a freehold condominium development, the developer is the owner of the land that the units are on. If someone buys a unit, ownership of the condo is transferred to the buyer. The difference between a traditional condo building and a condo development is that the owners are responsible for their own unit maintenance and upkeep. Management is responsible for the maintenance of common areas.
Do Condos Make Good Rental Property Investments?
If you like the idea of investing in a condo, there are some potential drawbacks you should be aware of.
Condos offer very attractive investment opportunities. Prices tend to be lower than single or multi-family homes, and there are fewer maintenance issues to worry about. However, there are some drawbacks you need to consider, one of which is the monthly fees that can have a tendency to increase significantly and without warning. Condos can also be challenging to get financing for.
A condo makes a good investment in the right situation, but you should understand what you’re getting into before you sign a purchase contract. On the plus side, you’ve got the following:
- Condos are significantly cheaper on average than single-family homes.
- Condos tend to be located in areas where single-family and multi-family rentals are in short supply.
- Condos come with additional fees but tend to have significantly fewer maintenance expenses than single-family or multifamily investment properties.
- Condos fees generally cover some of the expenses you’d ordinarily have to pay for. For example, the fees and services could include building insurance (in addition to condo insurance for the unit), garbage collection, cable, pest control, water, and more.
On the negative side, it pays to be aware of the following:
- Condo association fees: Condo fees can be extremely high in some cases. That being said, they can be worthwhile, but it depends on what they cover. If you’re not expecting them, they can add to the expenses your rental income has to cover.
- Financing difficulties: Mortgages are available for condos, but they’re more challenging than financing a single or multifamily home. You could find a lender who will only lend if the condo building is at least 50% owner-occupied and there is an HOA with a low delinquency rate and no ongoing litigation.
- Rental restrictions: Some condos prohibit rentals altogether, while others have specific rental conditions.
- Slower appreciation: Condos tend to be better suited for income-seeking investors. Typically, they appreciate in value slower than comparable multi or single-family properties.
Final Thoughts
A detached condo is a more affordable option compared to a single-family home. However, the resale value of this kind of property depends on how the unit is maintained and how well the common areas are maintained.
If you want to invest in new real estate property, a detached condo could be the way forward. Choose to live in it, and you’ll enjoy many benefits, such as the stunning amenities and perks at your disposal. It also offers lots of opportunities for a rental income as the benefits of living in a detached condo will also appeal to potential renters.
Before you invest in a condo, make sure the numbers make sense. This rule applies to all investment properties but is especially relevant for condos. They can be tricky because of the additional fees you’ve got to account for. As a general rule of thumb, make sure the condo will generate acceptable cash flow over time, taking into account vacancy, maintenance costs, and special assessments.
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