We received this reader question about whether to buy a small condo for a first investment:
Hi guys, Thanks for all the really useful info! I’m thinking of buying a small condo as an income property. I am a single mum living in Vancouver, Canada at the moment. Do you think this would be a good idea. Any advice would be greatly appreciated!
– Gillian
We are not financial advisers, real estate agents, or in any other capacity to give specific advice. So I’m not going to tell Gillian what to do. However, this question brings up issues to explore when considering a real estate investment.
There are multiple angles to consider in any investment decision
We use four main investment criteria when considering our next move: risk, interest level, special expertise and activity level. You can read more about how each of these come into play for our own investment decisions in a previous post on real estate investments we have turned down.
Another angle for this question specifically is geography of the purchase. Gillian mentions that she’s in Canada, and since we write about Costa Rica and other travels, I assume she’s thinking of a condo in Costa Rica or somewhere outside her home country. Geographic selection with respect to real estate brings up another set of criteria, which I outlined in a previous post on the 7 factors we consider when picking a geography.
The question of home country or abroad has come to us before. Another reader was considering an investment property in their hometown versus a property in Costa Rica. Again, in the spirit of not giving specific financial advice, I didn’t answer their question directly, but I did post factors to consider and a decision matrix to help keep track of the multiple considerations in any one investment.
With Gillian’s question in particular, an additional angle to consider is the type of property to invest in. Gillian asks about a condo, but a single-family home or even two- to four-unit multifamily would also qualify as a residential investment (as opposed to commercial). If your investment criteria point to a real estate purchase as your next move, should that purchase be a condo or house?
Condos have been a good entry point for us
Lower price point
With our Costa Rica portfolio, we started with a condo because we wanted to keep our first investment at an amount that priced us out of homes in our target area. Condos come with a lower price point, and if that’s what you can afford and you can make the numbers work with a condo, that’s the best first step.
Less maintenance
Another advantage of condos is you have a smaller scope of maintenance to be responsible for since the condo complex takes care of the landscaping, the overall building and common areas. This was the reason we started off with condos when building our Jacksonville, FL portfolio. We were concerned about hurricanes and other high-maintenance issues. The monthly maintenance dues that come with all condos were a suitable trade-off for us to make. Besides, there are many condo complexes in Jacksonville so monthly dues remain competitive.
Shared amenities
In addition to taking care of some of the maintenance issues you would incur as a homeowner, a condo complex might offer amenities, such as a pool or fitness room, that would be cost-prohibitive for you to afford on your own. Our condos in Tamarindo are in a complex with two pools, 24/7 security and beautiful landscaping. Amenities vary for our condos in Jacksonville but some offer pools, tennis, gym, party room and more.
Houses allow for maximum flexibility and control over your investment
No condo fees
Those condo maintenance fees that provide the advantage of lower responsibility are also a key disadvantage of condos in that you can’t manage these expenses away with exceptional care for the property or other cost-saving measures. You’re stuck with that monthly expense, and it can be significant. In addition to the cost, you relinquish quality control of maintenance issues. If you are a handy person who could tackle the maintenance issues yourself or you have a good team on the ground, you might not want to relinquish that control to the condo complex.
No condo board telling you what to do
Condos also often have other restrictions in place, such as how much you can decorate the outside walls or door of your property. They might have restrictions on how you rent out your unit. For example, our Jacksonville condos prohibit short-term rentals, so using the properties as vacation rentals is not an option. If you are considering a condo for a vacation rental investment, you need to confirm that the rules allow you to rent it out this way.
Unlike condos, you have freer rein with a house. You make decisions about landscaping and other external design features. You can install a pool, garden or whatever amenities you want to offer. Our house in Langosta, Costa Rica is on a double lot which provides a lot of opportunity to add value. (Some homes are located within a complex that sets up rules and restrictions, so you still may run into restrictions with a home purchase within a gated community.)
Higher rent potential
The differentiation you can do with a house extends to the rent you can charge. Condos can easily be compared within the same complex, but a house, even in the same neighborhood, is going to have unique features that are harder to compare. Houses typically offer more space, and even if a house is similarly sized to a condo, there is additional privacy with a house. This also points to higher rent potential.
Fewer financing restrictions
Houses almost always can be financed (this is US-specific as I’m not familiar with financing in all parts of the world). In the US, houses can almost always be financed, unlike condos where some complexes don’t qualify for financing. If you need financing, you’ll need to check the financing availability for condos you are interested in.
We have invested in both condos and houses – remember, there are multiple angles to any investment decision
Whether you purchase a condo or house will impact your financing options, revenue potential and expenses. However, that’s all math, and the numbers can work for both condos and houses. There is a rental pool for both condos or houses. The process to determine the best property type is similar to the process to determine the best investment – run the numbers, do the research and compare what you find to your decision criteria.
- A condo may be the right investment purchase, or you may want to consider a house or multifamily.
- Real estate might be the right investment, or you may want to invest in stocks, bonds or a CD.
- Investing might be the right strategy to bring in additional income, or you may want to start a side business and funnel your real estate down payment into that venture.
- Using the cash you have for investing might be the right next move, or you may decide to hold onto your cash rather than invest it, in anticipation of a recession.
The right next move depends on your individual circumstances, goals and risk/reward appetite.
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What upcoming investment moves are you making? Does anyone have additional criteria on the condo v. house decision that I didn’t outline here?
We are Scott and Caroline, 50-somethings who spent the first 20+ years of our adult lives in New York City, working traditional careers and raising 2 kids. We left full-time work in our mid-40’s for location-independent, part-time consulting projects and real estate investing, in order to create a more flexible and travel-centric lifestyle. 
Financial independence and early retirement is not something we originally focused on, but over time realized it was possible. Our free report, 
Here in Costa Rica I think one of the most important considerations is security. I feel that a gated condo with 24/7 security and controlled parking is a necessity, especially if you are renting. All it takes is one break in and your vacation rental becomes tainted. Love your blog and hoping you update your rental stats to share your returns.
Hi Steve, thanks for the kind words on the blog! Yes, some condos offer gated security, but not all, so it’s something to check if that’s a priority. Parking is definitely an issue as Tamarindo gets more crowded, and depending on where your condo is — if it’s Tamarindo proper and you just want to stay there, you don’t need a car. As for rental stats, there is so much in flux with new tax and business laws, that it will be at least a year till the true impact on returns is felt.
With regards to condo vs house, in Florida I have noticed that condo values can fall deeply during recessions… so that is a great time to pick them up.
After the Great Recession you just about couldn’t give a condo away here in central Florida. Some savvy people scooped them up and enjoyed both good cash flow returns from renting them out, and value appreciation on the upswing.
Downside is that a vacancy on a condo really hurts the pocketbook due to the recurring cost of maintenance fees on top of any mortgage you might have. But like you folks said, those fees are in lieu of owner directly paying for ongoing maintenance of the roof and exterior of the home.
Yes, the HOA dues really hurt — we definitely take that into account when we consider condos. That said, maintenance on a house can be quite costly, and you assume the full burden. It will be interesting to see what happens to real estate in this recession/ depression. I can see data points in either direction so we’re taking a wait and see.