Once you've made the decision to become a landlord, you need to decide whether you're going to be renting out a trendy downtown condo or a cozy suburban single-family home. These are vastly different types of properties, and they're different kinds of investments. Before you make the decision, you need to start assess the risks you may face.
The Pros and Cons of Condominiums
Condominiums are one of the go-to investments for people who are looking for rentals. They are easier to maintain, and they are simply more affordable, which means that an investor can hedge their bets by owning many condominiums rather than a single free-standing home. Condos generally come with amenities, such as a pool, and because they also come with built-in security features, they are more popular among tenants. Of course, this also depends on the real estate market.
On the downside, these benefits come at a cost: monthly association fees and special assessments. Association fees will cut into monthly rental profits, whereas special assessments can occur at any time (that the condo board decides) and can also be very expensive.
It should also be noted that condominium associations, like homeowner's associations, can be extremely restrictive. They can be restrictive in ways that a standard HOA isn't, simply by being able to control common spaces. It is possible for many condominiums to change their mind about allowing renters certain options (though most existing tenants will be grandfathered in). It's essential to consult with a property management company regarding a condominium's association and whether its board is overly restrictive.
The Pros and Cons of Single-Family Homes
Single-family homes can either be extremely profitable or have a negative return, and whether they are one or the other depends on a lot of luck and expertise. Single-family homes rent for much more than condos (though they also cost more), but they also don't have condo association fees and special assessments. Instead, they have HOA dues (or sometimes no dues at all). If a home is being rented out and rent is being paid consistently, then a home will almost always be substantially more profitable than a condo.
Unfortunately, there are drawbacks to consider too. When something happens to a single-family home, it tends to be more expensive. Replacing roofs, installing new water heaters and upgrading an HVAC system is all going to be a substantial expense, which would either be cheaper or unnecessary with a condominium. Tenants can do a lot more damage to a single-family home with it going unnoticed. There are some markets in which renting out an entire single-family home can be risky. It's likely you may end up having to do a lot of repair work on your own if you intend to be a DIY landlord.
Both condos and homes are stable investments. However, it just depends how much risk you wish to take when selecting between the two options. In general, renting out a condominium is safer but yields less regarding revenue. Renting out a home is riskier but can have a far more substantial ROI. Either way, the right property management company can help you reduce your risks. If you're deciding whether you want to rent out a condo or a home, contact us at Aria Properties before you make your decision.