Buy a Condo or Rent an Apartment: What's The Smarter Investment?

Should You Buy or Rent a Condo

A condo community may be one of the best options for those looking for just enough space with fewer responsibilities. Depending on the condo's location, owners may not have to worry about things like shoveling snow or cutting grass, as the association may do that for the owner. Condos for sale may also be in some ideal locations, including the downtown hub of many cities, offering a modern urban lifestyle. Before deciding, also consider the benefits of buying or renting a condo.

Consider Rent Costs vs. Mortgage Payments

Buying a condo may require a mortgage, which means monthly payments until the loan is paid off. It also means, potentially, paying real estate tax, higher home insurance costs, and upkeep and repair on the property. The key benefit, though, is that the buyer owns the home at the end of that mortgage term. Keep in mind buyers also have to qualify for a mortgage loan, which may mean careful consideration for credit scores and loan availability.

Renting a condo requires a monthly payment and renters insurance, but the costs may be lower than purchasing a home. There's no endpoint in place when it comes to making those rental payments, and renters could face increases year-over-year if the rental company decides to increase the costs. There are also steps to qualify to rent, but they may be easier to meet than trying to obtain a mortgage.

For those looking for lower home payments, renting may be the route to take. It may also make sense to rent a condo if the person moving isn't sure if the area is right for them or if there are plans to buy a house within a few years. It's often easier to move at the end of a lease than having to find a buyer for the condo. However, it may be worth using an online rent vs. mortgage calculator to determine which makes the most financial sense depending on how long a person intends to live in the condo.

If You Own a Condo, You Can Rent it Out

Those who purchase a condo can live there long term as their primary residence. However, if they plan to move in the future, there's the potential to maintain ownership of the property and rent it out. This could create an income stream for the owner, creating a way to pay off the condo purchase and start putting money in the bank.

If the condo is not intended to be a primary residence, the owner may wish to choose either a short-term or a long-term rental opportunity. For example, if the property is in a popular tourist destination or a location frequented by business travelers, short-term rentals (those for a few days to a few weeks) may provide a ready stream of income for the owner. Short-term renting can be quite lucrative if there is enough demand for the property.

Another scenario occurs when the owner rents long term. This could mean steady income month-to-month for a year or longer. Another advantage here is having one renter to manage rather than advertising and cleaning the property between numerous renters throughout the year.

Keep in mind if the property is in an HOA, it may not allow rentals or have special terms on rentals in the community. That's something to consider when purchasing the condo if renting is a goal.

If You Own a Condo, You Can Build Equity

Owning a Condo to Build EquityA key advantage of condo ownership is having the ability to build equity in the property. Equity occurs as the mortgage is paid down and the property increases in value over time. Equity is an excellent tool because, if necessary, it is often possible to borrow from that value and use the funds for many other things.

Consider how this may apply in any situation. For example, if a person purchases a condo and lives in it for a few years, paying down the mortgage, and the value of the condo increases, that builds equity. Using that equity to make a down payment on a home loan may be possible, allowing the condo owner to purchase another property later. It's also possible to use that equity for other things like renovations and improvements or to pay down other debts owed. When renovating to increase space in a condo, owners can borrow against their equity to get a home improvement loan.

Maintenance Responsibilities As an Owner vs. As a Renter

Both renters and owners need to maintain the property, but how much they may have to do differs. All repairs, maintenance, and upgrades are the property owner's responsibility when owning any property. That means if the siding needs repairs or there is a leak in the bathroom, the owner has to take care of it or hire someone else to do the work.

It's a bit different in a traditional renter's agreement. The interior upkeep of the condo may be the owner's responsibility, such as maintaining the living space. However, when there are repair needs, such as a leaking toilet or a non-functional refrigerator, it may be the rental company's responsibility to handle those types of tasks for the renter. Keep in mind this may differ significantly from one rental agreement to the next—it is essential to know what to expect.

The maintenance of the exterior of the condo is a bit different. In areas with an HOA, there may be fees paid by owners to help cover routine maintenance costs. In some associations, that may include building repairs as well. Again, it's critical to read the terms when buying or renting a condo to know what maintenance responsibilities condo owners can expect. Many times, the occupant isn't responsible for outside work on the property, but that may differ in some situations.

Which Is the Ideal Solution?

There is quite a bit to consider when it comes to choosing to buy a condo or rent one. Factors such as where the condo is located, maintenance and rental fees, and HOA fees may play a role in that decision. Also, a person's desire to live close to others and how much space is desired play a role in this decision. In many cases, both options may be a feasible opportunity.

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