Whether you’re a first-time homebuyer, looking for a house to raise your family, or seeking to settle in after retirement, you may wonder if you should choose a single-family house or a condo unit.
When you think of homeownership, you might think about the pride that comes with owning a house, having outdoor space to gather with friends and family, or even tons of storage space.
However, shortly after closing, the reality of upkeep, maintenance, and those pesky property taxes sets in. Was buying a single-family house really the best choice for you?
Buying a condo comes with other perks and drawbacks, though.
Choosing one over the other is more than a financial decision, it’s a lifestyle choice. Understanding the difference between buying a condo and buying a house can help you make the right decision.
How Buying a Condominium is Different Than Buying a House
A condo is a unit within a larger, multi-family apartment building. You can buy a condo, but you only own your apartment and a percentage of the common areas, not the property the building sits on. That means your condo won’t appreciate in value as much as single-family homes, since you haven’t invested in the land.
Also, condo owners pay monthly fees that cover the upkeep of the property. If your condo is part of a homeowners’ association, you might also pay association fees each month.
A condo community combines the lifestyle of apartment living, where your neighbors reside in the same building as you, with some of the benefits of homeownership.
What’s the Difference Between Buying a Condo and Buying a Co-op?
Before I move on to explain the pros and cons of buying a condo or a single-family residence, it’s important to clarify the difference between a condo unit and a co-op. People often use the terms interchangeably. Condos and co-ops may look similar — they both provide apartments within multi-family residences. But the real estate transaction for each is completely different.
When you buy a condo, you’re purchasing your apartment within the condo community. Just like buying a house, you’ll receive a deed for your purchase at closing.
When you’re buying a co-op, you actually purchase shares in the corporation that owns the building. That purchase gives you the right to occupy one of the apartments in the co-op. You’ll sign a lease for your co-op purchase, just as you would if you were renting an apartment.
It’s also important not to confuse a condo with a townhouse. A condominium is a single apartment unit within a multifamily building. A townhouse is a single-family home that shares common walls with the neighbors on either side. Like condos, townhouses tend to be more affordable than other single-family homes and also located in urban areas. (The legal structure of a townhouse and a condo tends to be the same.)
Pros and Cons of Buying a Condo vs. a House
Now that we understand the terminology, let’s compare the pros and cons of purchasing detached homes vs. condominiums.
Benefits of Buying a Condo
For generations of people who have delayed or even eschewed homeownership, buying a condo has many benefits over buying a detached home. In many ways, a condo represents the best of both worlds: Building equity in your own space but also enjoying the vast benefits of a condo community, reduced maintenance, and lower total costs.
Let’s dig deeper into some of the benefits of buying a condo.
No exterior maintenance or repair costs: From mowing the lawn to keeping the outside of your condo unit clean and well-repaired, your condo association takes care of it all. Appliances, plumbing, electrical, and some repairs inside the home may also be covered by the association (but sometimes they are not and the same can be true with windows and decks).
Gain access to amenities you don’t have to maintain: Not everyone can afford, or wants to maintain, a pool or backyard playground for their children. Many condos include these amenities, as well as things like dog parks, fitness centers, and clubhouses that residents can use to host parties.
Condos are typically cheaper than houses: Condos tend to be smaller than single family homes, which means they’re more affordable. Plus, you aren’t buying the property, which further reduces the purchase price.
Less closing costs than buying a home: Sources cite closing costs of a house as approximately 3% to 5% of the home’s purchase price. Condominium closing costs tend to range from 1% to 3% (though this can vary by state). Coupled with the condo’s lower selling price and you can realize substantial upfront savings buying a condo.
Condos create a sense of community: From community events to simply being closer to your neighbors, condominium residents often gain a strong sense of community. For people who like this benefit of apartment living but want to invest in property, a condo could be the answer.
Insurance costs less: Homeowners’ insurance for a condominium costs substantially less than it would for a house. You only need to protect your belongings and the inside of your apartment – not the roof, siding, or the rest of the property.
Lower property taxes: Again, because you only own your condo unit – not the land – you’ll pay less in property taxes compared to a house in the same area.
Drawbacks of Buying a Condo
Even with all these perks of apartment living in a condo, buying a condo may not be for everyone.
No private yard: If you have kids or if you enjoy outdoor entertaining, like cookouts or swimming in your private pool, you won’t find that in a condominium. Some condo buildings may not even allow a grill on the property. You may have to walk a fair distance to enjoy the community amenities, which may not be ideal if you have small children who need supervision. If you want to open the backdoor and let the kids out to play, consider a detached home with outdoor space.
Less privacy than within a single-family house: Do you hate the idea of running into your neighbors every time you go to get the mail? Do you like blasting music – or even vacuuming late at night? Condo living requires consideration for your neighbors, who may be just on the other side of your wall, floor, or ceiling. If you crave privacy, skip the condo.
HOA rules limit modifications you can make to your unit: It’s not just privacy you sacrifice when you buy a condo. You’re also giving up some of your freedom as a homeowner. Most homeowners associations prohibit things like solar panels or painting the outside of your unit. Some may even prohibit decorative flags or holiday decorations.
You may have to get approval to make changes within the condo, too. You’re probably allowed to paint interior walls, but you may not be permitted to add a closet or move kitchen appliances, for instance.
Lack of storage: Many homeowners enjoy the benefits of a basement, garage, and even outdoor sheds for storage. Some condos may include detached storage as an amenity. But most condos have limited storage. Depending on how you look at it, these could be a benefit if it encourages you to clear clutter and live with less stuff.
Less real estate appreciation value: Because you aren’t buying the land, condos don’t appreciate as quickly. When you go to sell, you may not walk away with much cash in hand.
Monthly fees: Condo association fees vary widely, from $50 a month to thousands for a condo within a luxury community. Monthly HOA dues for a condo in Florida, for instance, could cost more than $400 per month, according to statistics from real estate site Trulia.
Condo fees are usually calculated per square foot and depend on the location of the condo as well as the amenities and services offered. If your condo community needs unexpected repairs, such as to fix a roof, the homeowner’s association may tack on added monthly fees to cover the cost of those repairs.
Many people buying a condo don’t realize that homeowner’s associations can raise HOA fees without a resident vote.
Benefits of Buying a Single-Family House
If you have misgivings about buying a condo and sharing tight quarters with your neighbors, consider some of the benefits of a single-family residence.
More square footage: Single-family homes tend to be bigger than condos. If you want space for your family to grow, a single-family home might be a better choice. If you have a big family that you like to entertain, or if you work from home, you may want the space that a house provides.
Privacy: A house gives you room to spread out. It also gives you privacy. Just knowing you don’t have to worry (too much) about making noise that will disturb the neighbors can create a sense of freedom.
Yard space: Do you covet a fenced-in yard, a spacious backyard oasis, and maybe even a hot tub or swimming pool? If these things sound like the American dream to you, then consider homeownership over buying a condo.
Storage space: Noticing a theme here? Most houses provide plenty of storage space for everything from multiple cars to bicycles and anything suburban families may want to collect. Basements, attics, spare bedrooms, closets, and sheds all make it easier to store everything from holiday décor and seasonal wardrobes to extra food.
More flexibility to do your own home improvement or make modifications: Whether you want to paint your house an offbeat color or renovate the interior to create an open floor plan, it’s your space. You can do as you wish. Some single-family homes are part of an HOA, which could limit outside renovations and decorations. But, in most cases, a single-family house gives you the freedom to make changes as you see fit, indoors and out.
Best of all, the improvements you make to your real estate can raise the resale value of your home, so you’ll get a portion of that money back when you sell.
Property likely to appreciate over time: With the exception of a housing market crash, real estate tends to appreciate over time – especially land.
A private home is also easier to sell than a condo. You may want to put down roots in your house, but if you decide to move at any time, it might be easier to sell a house than a condo.
Build more equity: It is possible to take out a home-equity loan or do a cash-out refinance on a condo. But because your monthly payments also go toward fees – and most condos don’t appreciate as quickly as single-family houses – you may not build up equity as quickly, which means you won’t be able to take out a loan using the condo as collateral.
On the other hand, if you maintain a good credit score, you can tap into the equity of your single-family home at almost any time through a home equity line of credit or a mortgage re-fi loan to borrow money at a low interest rate.
Drawbacks to Buying a Single-Family House
All the things that make a condo desirable, from less maintenance to lower costs, might make you think twice about buying a house.
You’re responsible for home improvement projects, repairs, and maintenance – A first-time homebuyer may be surprised by the amount of time and money that goes into maintaining a home and yard. You should expect to pay about 1% of your home’s purchase price, annually, just for maintenance and repairs.
And that stereotype of suburban homeowners spending their weekends on yard maintenance? It’s not just a myth. Unless you hire landscapers, yard work eats into all that time you could be spending enjoying your outdoor space.
Higher taxes and insurance: More property means higher property taxes, as well as a bigger homeowners’ insurance bill.
Less sense of community: Neighbors in most suburban communities live more spread out, with bigger lots separating them. You have to try harder to make friends with your neighbors, and attending community events might mean a drive across town.
Higher purchase price: In general, houses cost more. Even when you consider the HOA fees associated with a condo, you’ll pay more for the principal, interest, taxes, and insurance that make up your mortgage payment for a house.
Costs of Buying a Condo vs. a House
In general, buying a condo costs less than buying a house. From closing costs to property taxes, as well as repairs, the overall price of ownership is lower for a condo.
But make sure to take into account all HOA fees and unexpected expenses — such as storage fees if you need to rent a storage unit because all your belongings won’t fit in your condo.
However, the home equity you can build in a single-family residence might make up for the added expenses and maintenance costs tied to single-family homes. As a long-term real estate investment, your land will continue appreciating. In most real estate markets, you’re unlikely to lose money when you sell your house.
Why a Condo Makes a Good Rental Property Investment
If you’re considering real estate investing, however, a condo could be a wise purchase. Lower taxes, lower insurance rates, and a lower purchase price all make condos a profitable choice for landlords.
You’ll find several advantages to starting your foray into real estate investing with a condo.
● Less maintenance
● Condos are usually in desirable areas close to dining, attractions, and downtown regions
● Tight-knit community apartment dwellers seek
● Property management handled by condo association, not the landlord
● Usually easy to rent in any market
Many people find renting a condo to be a better choice for their finances than buying one, creating opportunities for landlords to create passive income with their real estate investments.
How to Choose Between Buying a Condo or a House
Ultimately, the decision to buy a condo or a house comes down to your lifestyle and your budget.
● Do you need extra space?
● Do you want to build equity?
● Do you want lots of property?
Buying a condo could be the next step up from renting an apartment. If you’re looking for a space to call your own and want to get more for your money, including a location that may be closer to amenities, consider a condo.
Otherwise, a house will appreciate in value, be easier to sell, and offer flexibility as your family’s needs change. You may be able to find a good deal on a fixer-upper, and might even be able to finance renovation costs, allowing you to get more house for your money.
Talk to a real estate agent if you have your heart set on homeownership but have a tight budget. You may find the right house waiting for you.
—By Dawn Allcot