Rent or Buy? What's the Best Option for Condo Living?
Anyone considering buying or renting condos will likely have questions about which is the better choice: going for a rental apartment or taking the plunge towards condos for sale. Many buyers enjoy the perks of living in a condo community that typically includes various amenities and requires less work on behalf of owners.
Those who choose to rent may be seeking a temporary place to call home until they are ready to buy. In contrast, others may be interested in ownership to stabilize monthly expenses or avoid worrying about the need to move.
Also, some investors may be looking to buy condos as investments to establish a short-term rental income to build their financial portfolio. Keep reading to learn the differences between renting an apartment and buying a condo.
Consider Rental Costs vs. Mortgage Payments
There may be cost differences between paying rent and paying monthly mortgage dues. However, the rates are likely to remain in the same price range in general, but those who buy can often enjoy lower payments with good credit and a low-interest rate on their home loan.
Those planning to stay in a condo for five years or longer may find buying a condo is the best option. This is because buyers can:
- Build equity with each mortgage payment
- Deduct mortgage interest from state and federal taxes
- Enjoy stable monthly payments that won't fluctuate
- Have more freedom to decorate and make improvements to boost equity
However, buyers of condos may have to pay higher interest rates if their credit score is low, and they will need to have closing costs in hand and be prepared to handle the majority of repairs to the condo over time.
Renting a condo is often best for those looking for a short-term home with eyes on moving into a larger home or to a new city in the future. Condo rentals are popular because tenants typically can rely on their landlord or the property management company working for the condo owner's association (COA) to handle landscaping, maintain common areas, and repair the building. Renters can also avoid property taxes, which are included in rental rates.
Renters may find themselves in a situation with slow-responding management or landlords, and the COA rules may be stricter for renters versus owners. Renters may also have to pay any association dues as a part of their monthly financial obligations, and they may face rate hikes or term changes at each lease renewal period.
Condo Owners Can Rent It Out for Profit
If a condo investment is not intended for full-time owner occupancy, such properties can serve as short or long-term rentals to generate additional or supplemental income. Such properties in vacation communities tend to be rather profitable for investors, as the units almost sell themselves to travelers seeking a coastal destination.
Real estate professionals often advise those investing in a rental property to have a goal of making $10,000-$12,000 annually in rental income for every $100,000 invested. How much do people earn on vacation rentals? A survey of seasoned investors on VRBO found that the average owner renting out a second home generates an additional $33,000 in annual profits.
If You Own a Condo, You Can Build Equity
Those who rent will not have the option to build up equity as a homeowner can. This means that there is nothing to reimburse financially for their rental expenses when they leave the unit. On the other hand, buyers can opt to sell the home at current market rates for a profit or use any equity established in the condo to make improvements or get involved in other investment ventures.
How do owners build equity? This can be achieved in a variety of ways. Sometimes, the market gets hot, and a home can increase in value without any improvements or through minor ones. However, most owners maintain and upgrade their property over time to increase the condo's value, which in turn builds equity that can be drawn from at any time before or during a sale of the property.
Owners can look into recent trends to see which home improvements offer the best ROI to make smart choices when upgrading a condo. This ensures that as the demand for homes in the neighborhood grows, the investor's property will continue to appreciate through increased equity and proper maintenance that builds equity.
If You Rent, You Can Avoid Condo-Ownership Costs
Through renting, one can avoid several costs associated with homeownership. One of these expenses is property taxes, which increase annually and can be quite a burden for renters. However, these costs are covered by owners and may or may not be absorbed by rental rates.
Another expense that can be avoided is the need for homeowner's insurance, which can take a good chunk of change annually. Renters can purchase insurance to cover personal property, but owners will generally pay for insurance for the structure itself.
An added perk for renters is that owners are held liable for making the most significant repairs that arise in the condo, and the COA takes care of many exterior upkeep duties. Maintenance responsibilities for condos can add up quickly, especially in older units, due to new major systems or older pipes or appliances in place. That said, renters don't have the same freedom to implement condo interior design tips that maximize space.
There are also benefits for renters whose landlords cover COA fees that can range between $200 and $500 per month in condo communities. However, landscaping and exterior upkeep of common areas and amenities are typically not the responsibility of renters, equating to significant savings versus ownership. Some communities or owners also cover utility costs such as water, trash, gas, and internet.
Renting Can Be More Flexible
One of the biggest advantages of renting a condo over buying is the flexibility it provides. Renting allows you to move around more easily, which is particularly beneficial for people who move frequently for work or other commitments. If you're unsure about your long-term plans, renting can also give you the opportunity to explore a new city or neighborhood before committing to a purchase.
When you rent a condo, you usually sign a lease for a fixed period, anywhere from one month to a year. After that period is up, you have the option to renew your lease or move on to a new location. This flexibility allows you to adjust your living situation to fit your changing needs without being tied down to a specific property.
Renting can also be advantageous if you're not sure if you want to live in a particular city or neighborhood long-term. By renting, you can get a feel for the area, explore the local amenities, and decide if it's the right fit for you. If you decide it's not the right fit, you can move on to a new location without the hassle of selling a property.
Ready to Buy a Condo?
Unless one knows their exact plans and intentions for the property and has the experience to realize those goals without help, it's best to consult with local real estate professionals, property management companies, brokers, or other experts who understand the local real estate market. Before signing up to rent or buy, seek guidance from these entities who can assist in making a profitable and intelligent choice to meet your specific situation.