January 3, 2017
House or Condo: Which Is Best for You When Buying a Vacation Rental Property?
Growing up, my parents would always involve us in the selection process when viewing properties as we searched for our new vacation home. My parents always gave a lot of preference to condominiums over stand-alone houses. I remember being somewhat annoyed by this as a child, as I preferred houses over condos since they were usually a bit bigger with more yard space.
But now, as an adult and owner of my own rental properties, I totally understand why my parents preferred condominiums because they do have many benefits if you’re using the condo as a vacation rental property. Of course, houses have many “pros” as well, so the best choice really will vary depending on your unique preferences.
What’s more, the property type can have a major impact on your property management costs and the amount of work a property manager would need to perform. So in this way, your long-term recurring costs will be impacted as well.
So if you’re ready to buy a vacation home and plan to rent your vacation property out to others, then you’ll want to carefully consider some of the following points to determine whether a house or a condo is best when buying a vacation rental property.
The Pros and Cons of Buying a Condo as a Rental Property
A condominium has lots of benefits and also some drawbacks if you’re considering this type of property as a vacation rental home.
When you buy a condominium, you’re literally buying a unit within a larger structure or complex. You do not own the land and are not typically responsible for the upkeep or maintenance of common areas, such as hallways and landscaping, and amenities, like a pool, gym, or business center. You also are not responsible for the maintenance or repairs of the structure’s exterior or roof as you would be in a detached single-family home, so this can result in lower maintenance and repair costs.
Most condominiums range from small to moderate-sized in terms of square footage, so if you’re comfortable with a smaller or mid-sized property, then this may be a good choice. But for large families or those seeking a more spacious piece of real estate, your options may be a bit more limited.
Condominiums are typically governed by a set of rules and regulations, which can be somewhat restrictive. For example, there may be pet-related limitations or even age-related limitations if you buy a unit in a so-called retirement community. This can narrow your pool of potential guests somewhat, while also resulting in a bit more work for your property manager who will need to screen guests more intensively.
Your property manager may also be tasked with ensuring that your guests are in compliance with the condo complex regulations. If your guests violate the rules, then you, as the property owner, could face a fine. So this is an important point to consider, especially if you live in an area that sees lots of college students and young adults who tend to be a bit rowdier.
This also brings us to another “con” of condominium living: the neighbors. You could potentially have neighbors on four sides, which means more potential for disturbances and complaints. If you choose a unit in a condominium complex where fines are a very real possibility, then this is something you’ll need to discuss with your property manager to ensure that there is something written into your guests’ contract so you won’t be forced to shoulder the burden.
A condominium will also be associated with condo association dues, which do vary quite a bit in terms of cost depending on the region and the nature of the complex. Condo association fees can range from just $1,500 to $10,000 or more per year in some of the more upscale complexes. But it is important to remember that these fees will cover certain expenses, such as exterior maintenance, landscaping and lawn care, pool care, and the upkeep of any common areas or amenities, such as tennis courts, a private beach area, or an on-site gym.
So in a condo setting, you can potentially offer more amenities to your guests, while also enjoying lower property management fees since your property manager won’t need to tend to the areas that fall under the condo association’s realm.
In all, a condominium can be a good choice for anyone seeking a vacation home that doesn’t require a whole lot of upkeep and maintenance. You and your guests can enjoy all of the amenities in the complex or building, which is a definite advantage. In terms of amenities, you tend to get more “bang for your buck” when opting for a condominium, as you would spend considerably more to buy and maintain a detached single-family property with amenities such as a pool, gym and tennis courts.
More intensive guest screening, vetting, and monitoring is required to ensure you remain in compliance with the condo association’s rules and regulations, so this does add a bit to your property manager’s to-do list. For this reason, you’ll need to be sure you have a property manager who’s experienced with handling condos.
The Pros and Cons of Buying a Home as a Rental Property
Just like condominiums, detached single-family homes feature many different pros and cons that you really need to consider if you’re in the market for a vacation home.
Detached, single-family homes tend to be a bit larger in terms of square footage, which is a definite advantage if you have a large family or prefer a more spacious home that can be marketed as a vacation rental that’s suitable for large families.
Unlike a condo, a house also has the added benefit of greater flexibility in terms of what’s permissible. There are typically fewer restrictions on pets, noise, and parking, which means that your property manager may not need to monitor or screen guests quite so intensively. You’ll find that a standalone, detached property is more friendly to families, college students and young adults, and pet owners. So if your family falls into one of these categories or if you plan on catering to one or more of these guest demographics, then you may be well-served by choosing a house over a condo.
Of course, many single-family homes are located within a homeowner’s association (HOA) or neighborhood association, so this is a vital point to consider. The fees and restrictions associated with an HOA can be comparable to those that you would see with a condo association. Investing in a property that’s part of a gated community or HOA can be beneficial if you wish to offer amenities to your guests, such as pool access, private beach access, or access to a fitness center.
But HOAs do come with a downside in the form of restrictions, limitations, and a significant potential for fines. So this is important to weigh the benefits and disadvantages. You will also be tasked with finding a property manager who feels he or she can effectively ensure that your property and your guests comply with the HOA’s rules.
With a standalone house, you do have the benefit of owning the actual property on which the home sits, giving you far greater flexibility, especially if you’re considering an addition or a major renovation in the future. You’re also free to modify the home both inside and out (unless your HOA has restrictions — and many do.) But with this freedom comes added burden.
A single-family house requires far more intensive maintenance, and the repair costs are much higher. Unlike a condominium where you’re responsible for only the interior, an owner of a single-family home is responsible for everything — the interior, the exterior, and the landscaping. This means more work for your property manager and as a result, higher property management fees.
It should be noted that it is extremely challenging — if not impossible — to effectively manage a house from afar. With a condo, it is far more feasible since you don’t need to worry about the exterior and many aspects of property maintenance. But this just isn’t practical, nor advisable if you buy a house. So property management fees should be considered as a non-optional expense when buying a vacation house.
Property taxes tend to be quite a bit higher for single-family homes when compared to condominiums. But homes don’t come with the condo association fees, so there is a savings in this regard.
Benefit From a Property Manager
In the end, condos and houses each have a unique set of pros and cons. Your proximity to the vacation home, your budget, the size of your family, your pets, and your target demographic in terms of guests are all factors that will impact your decision.
Whether you buy a house or a condominium, you can greatly benefit from the services of a property manager, particularly if you live a significant distance from the property. If you’re on the hunt for a fabulous property manager to oversee your new condo or house, check out Rented.com, where vacation home owners and property managers connect. Sign up for a free account and get quotes from some of the nation’s top property managers. Many of the property managers Rented works with even offer a guaranteed income model which allows you to earn a monthly income regardless of actual booking rates. Get started today at Rented.com.
Lead image: Flickr CC user Jeff Egnaczyk