Condo or house, what is the better investment? Given that the condo is in a better location.

Asked by Kip, Brookfield, WI Sun Jun 20, 2010

Debating on whether to buy a condo or a house. Condos seem to be a "not so good" investment in today's market place, but that is situational. Trying to gauge the Brookfield WI market place.

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John Mondello, Agent, Prairieville, LA
Mon Jun 21, 2010
Good comments all.

Kip, Welcome to the world of investing. I think its a good idea to start with the end state in mind. What are your goals? Once your goals are determined, you can start strategizing. Personally, I prefer a buy and hold strategy. This is basically buy a property, rent it out for a few years, and sell it at a later time if necesary.

Having said that, for the reasons mentioned already, I think homes are the better investment: they generally appreciate faster and are easier to get financing for. Another decision to take into account are the numbers. The whole point of investing is to make money in some form or fashion. Here's a formula I currently use for determining if its a good investment:

annual net operating income (NOI)/ down payment = percentage return

What is “annual net operating income”? This is basically, income minus expenses or in other words, cash flow. Let’s look at an example to see how it all breaks down.

Subject home: $160,000
Required down payment: $40,000
Amount Financed: $120,000
Rate 5.625%

Income: 1,550
Mortgage: 690
Property tax: 83
Insurance: 52

Add this all up and you have a monthly NOI of $725 or annual of $8,700. Getting back to our formula (NOI / down payment), it would look like this:

$8,700 NOI / $40,000 DP = 21.75% return

Not too bad. I usually try to shoot for 15% or greater.

Hope this helps. Good luck!

John Mondello, Realtor
“I find the house, you make it home.”
Keller Williams
(225) 329-8119
1 vote

Here is my situation:
I bought my condo back in May 2008 for $458K.
Today it's worth $380K.
My current rate is 4.125% and I am about to refinance in June 6th.
My loan is $300K
The rent my be $2300
Common charges: $350
If I refinance, I may get $150/month after all the expanses(mortgage,tax,c.charges,insurance)

What is the return based on this formula is: $150/?
Any ideas what would be the best option for me? (rent out/sell)
Flag Fri May 24, 2013
Mack McCoy, Agent, Seattle, WA
Sun Jun 20, 2010
The future is uncertain.

The three most important words in real estate: location, location, location.

Houses come with land, which has value, but in down markets, when builders aren't building, it has a whole lot less value.

Fixer condos in Manhattan go for six, seven hundred dollars a square foot.

More importantly, life is short - you work for a living, why take on a second job: living in a property that you don't love because you think it might pay out in the end. Buy something you love, live your life out loud, and you will be rich enough.

I'm serious.
1 vote
David Belman, Agent, Waukesha, WI
Thu Jun 24, 2010
Location is one of the most important factors in choosing where to live so that is a big plus for the condo right there. Some condos are doing well in this market and others are faltering. I have actually sold more condominiums this year than single family, usually it is the other way around.

If buying a condo you have to look at how many units are available in the development vs. how many are sold. If there are only a few units available financing should not be a problem. Ultimately the decision should come down to where you are at in life. If you want more time and less responsibility a condo may be for you. If you are still hand on and like to take care of things yourself then perhaps a single family is best for you. I build and sell both homes and condos and have been on both sides of the coin. Here are some benefits of both condos and homes that you can use to help in evaluating your decision.

Advantages For Condo:
•Largest Segment of the population is baby boomers and second largest is people aged 45-55. All highly likely to purchase condos down the line. There should be a healthy pool of buyers when you re-sell.
•Less work & more free time. The association would take care of all exterior maintenance. Grass cutting, snow plowing, shoveling painting are all handled by the association.
•More freedom. It is much easier to leave for extended periods of time because the association handles the exterior. Plus with an adjacent unit owner (as long as you trust them) they can keep an eye on your place.
•Most condominiums have more site amenities such as a community building, gazebo, trails, tennis courts, putting greens, pools, or other facilities which are nice value added facilities.
•Condos cost less. Condos have higher density than single family which lowers your land base cost plus It is much more cost efficient to build 2, 4, or more units in one building.

Advantages for Single Family:
•More control. It's your home, you can take care of the yard how you see fit, paint the home any color (as long as it is not deed restricted)
•More privacy. You don't have an adjacent unit in your building.
•No monthly dues for maintenance. You can do the yard work yourself or hire it out. Same with exterior maintenance.

Good luck with your decision.
0 votes
Bill Eckler, Agent, Venice, FL
Mon Jun 21, 2010
There are any number of factors that make condo ownership less appealing but the current real estate market may be responsible for biggest negative factor.

Banks are making it difficult for buyers to get financing by requiring the association to meet specific occupancy standards. They are interested in the number of vacant units, number of distressed sales, number of full time residents, etc. There is a major focus on the overall stability of the community and are using this a a basis for lending criteria.

Our advice is, if you are considering a condo be sure to do your homework in advance of going to contract, especially if financing is involved.

Best wishes,

0 votes
Jim Starwalt, Agent, Grayslake, IL
Mon Jun 21, 2010
I guess it all depends on where the condo is, where the house is, what the price is, how much the seller is willing To deal, what price you will pay compared to the others that are similar that have sold, not compared to what is on the market for sale..
So a general statement which is a better investment is almost impossible.
0 votes
Brent Dorner, , Sun Prairie, WI
Mon Jun 21, 2010
With all things being equal I would always say the house.... but as we know all things are not equal.

Let me speak from personal experience. I currently own a half duplex, not quite a condo but just about the same thing. I bought my place 6 years ago, at that time for what I could afford I was either going to get a dinky home (also bad condtion) in a questionable neighborhood or a place like I have in a great neighborhood. So I decided to choose location. Six years later the homes I was looking at are still in questionable locations and the area I live in has added a Copps, Mounds, Walgreens, Target, Subway, Kwik Trip and three banks all within 1 mile of my home.

Now as far as investment, I would say that the homes I could have bought in the poor location and the home I did buy are still worth about the same as when I bought them but the trade off was that I was able to live in a better location. I do have days I wish that I wasn't connected to another home and had more privacy. I don't pay an association fee, many condos will be arounf $150 depending on purchase price. I don't believe it costs me $1,800 a year to care for the outside of my property. To properly care for the outside of my home I figure it has cost me about $500 a year. So that means I pocket about $1300 a year to cut my grass and shovel my snow.

It can be harder to find lending for a condo than a home and obviously a condo will have a lot more restrictions than a home. Some have a lot of renters in them or have a lot of people behind on the association fees. I would say in general the condo will always be harder to sell and take longer. In general the home will increase in value at a faster rate. By saying "in general" meaning all things being equal.
0 votes
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