Wednesday, August 28, 2013

Single Family versus Condo

UPDATE 3/15:  View my analysis of this topic on my website.

I received a couple more calls from out of town buyers, asking about condos as investment property.  There's so much evidence that single family homes are a better choice for Sarasota real estate investors than condos, I thought I would lay out a simple analysis.

Fees:  No HOA in non deed-restricted single family neighborhoods.  You do not need to buy in a gated community for investment.  Condo association fees average $300 monthly and are predicted to increase with insurance and regulatory changes.   Advantage:  Single family home.

Management:  You will need a management company whether you choose single family home or condo.

Application:  Prospective tenants need to pay an average $100 application fee for condos.  No application fee necessary for single family homes.  Advantage:  Single family home.

Demand:  Condos do not usually permit tenants to have pets.  Tenants in single family homes can park multiple cars, boats, or RV's in non-deed restricted neighborhoods.  For these reasons and more, prospective tenants seek single family homes over condos.  Advantage:  Single family home.

Maintenance:  Tenants pay for lawn and pool maintenance for a single family home.  The management company you hire makes sure tenants are maintaining the home through regular visits.  You as the owner are still responsible for HVAC and appliances in either condo or single family home.  Advantage:  Single family home.

Insurance:  Single family home insurance costs for entry level up to $200K are $2500 to $3500 per year.  In addition to $300 per month avg condo fee, estimate another $100 to $150 per month for condo owner's insurance, required by most condo associations.  Advantage: Single family home.

Mortgage:  Higher interest rates for condo versus single family as investment property.  Condo associations must also comply with lender guidelines.  For these reasons and more, it's easier to sell single family as a resale in the future.  Advantage:  Single family home.

Warren Buffett is buying only single family homes in FL to hold and lease to tenants.  He's not buying a home he can eventually live in.  He's a billionaire, so why not emulate his business model?

Entry level single family homes don't have stucco facades with manicured lawns.  Entry level single family homes may not have glass mosiac backsplashes or stainless applilances.  Entry level single family homes may not have 18 inch tile or walk in closets.

Tenants for entry level homes aren't looking for these features.  They want a clean, neutral home in the best possible location.  

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