Is it better to buy a Condo or Rent an Apartment

People thinking about buying a condo or renting an apartment might be considering which would be more appropriate. Those who intend to settle in an area for the long-term will benefit from purchasing. Investors wishing to expand their real estate portfolio and generate passive income will want to purchase one of the condos for sale. 

Those seeking a temporary or short-term solution before committing to a purchase, on the other hand, may benefit from considering apartments. Renting is an excellent alternative for those who need to save for down payments, closing expenses, or to improve their credit scores and reduce debts to qualify for lower interest rates. Continue reading to determine whether you should rent an apartment or purchase a condominium.

Those Who Own a Condo Can Rent it Out

Purchasing a condo grants you full ownership of the property, allowing you to live there full-time, according to the season, or rent it out as a haven for vacationers for passive income. Ski towns, for example, have strong visitor appeal in both the winter and spring/summer, making them year-round vacation destinations for outdoor enthusiasts, resulting in a high demand for short-term rental accommodations.

Property brokers and real estate agents often recommend setting annual revenues from renting out a condo above $10,000. Those that have a property with unique features like ski-in/ski-out accessibility, steam showers, and hot tubs may attract even more guests, particularly during peak seasons. 

Owners who intend to rent out their condo to vacationers for 30 days or less have to get a short-term rental license while promoting their property. There are specific guidelines on how the property should be portrayed in advertisements, and the rental housing license number has to be mentioned.

If you do not purchase a vacation home but simply want to benefit from passive income, you can do what some call “house hacking”. House Hacking involves purchasing a home and renting out a particular section or certain rooms of the home and having that rent go towards paying your mortgage. For example, if you are renting a 2 bedroom condo for $3,000 per month, and you find a roommate to pay you $1,500 per month, you are saving each month on your monthly mortgage payment. And if you own a larger space, you can consider renting it out for more to potentially cover your entire monthly mortgage payment. 

Renting a Condo Means Less Responsibility

Many people want to have more freedom in their everyday lives and do not want to spend too much time dealing with condo owner maintenance chores. Those desiring such freedom may delay purchasing a home, but condo communities often work differently, so owners and tenants aren't overloaded with these concerns.

Condos are frequently managed by a homeowners or property owners organization, which handles a variety of tasks for both renters and investors. The association is responsible for the grounds, facilities, roofing, exterior siding, fences, and parking lots for a predetermined fee, which is often paid by the owner. Some also include necessary amenities such as trash and water. 

Renters have additional financial liberty because the condo owners manage taxation and homeowner's insurance for the building itself. Renters can acquire a secondary policy for protecting their belongings at reasonable rates. Although renters have more flexibility, it is important to note that they have less ability to employ condo design ideas that maximize space.

Condo Owners Can Build Equity and Have More Flexibility

Renting does not produce equity; however, owning does, as each mortgage payment increases one's net worth. A stable real estate market with rising property values can be a significant source of equity for owners. While renting may involve less responsibility and financial pressure due to closing expenses and down payments, condo owners might dominate their position in a variety of ways in the future.

A well-maintained unit, together with some modifications or improvements, will benefit the owners and make it more appealing to prospective renters or buyers. That being said, Cost vs. Remodeling magazine's high ROI home improvement efforts provide recommendations on the best modifications to increase equity. 

Ownership enables the property to be purchased at current market prices or for a profit, according to how well the unit retains or value increases. Owners can also collaborate with their lender to use the equity in their property to make upgrades or invest in additional properties to expand their portfolio holdings.

Oftentimes homeowners start with smaller assets such as condos and use their equity built over time to upgrade and purchase a larger home, which is not usually possible when first starting off. 

Is it More Affordable to Buy or Rent a Condo?

Several factors influence whether renting or purchasing is more inexpensive. A significant issue is how long one intends to live in the home, and those who want to stay for three years or more are frequently better suited to purchasing. Buying can provide a high return on investment because owners have the option to:

• Create equity that may be borrowed against a single mortgage payment.
• Take away mortgage interest from both federal and state taxes.
• Enjoy more flexibility in decorating and carrying out renovations that may increase equity and the value of your home. 

However, potential purchasers should have a high credit score, consistent income, closing expenses, and some down payment before qualifying for a mortgage. This allows buyers to acquire the best interest rates and simplifies the home loan process. Homeowners should be aware that they will be accountable for any repairs to the condo, and a savings account to tackle challenges is required.

Those in transitional periods should consider renting first. Renters may quit after finishing their lease agreements to relocate to a new city or anytime they are ready to purchase. Rental expenses can be equivalent to mortgage rates, and in some cases, lower, because landlords and HOAs handle the majority of the maintenance. According to NerdWallet's Rent vs. Buy Calculator, renters pay an average of $205 less than buyers with a typical mortgage. However, homeowners are building equity, which is much more beneficial in the long run. Think of owning a home as a savings account. Each year as your property appreciates, you are gaining equity that is building up your savings. As a renter, your money is not getting invested at all.

Buying or Renting: Which is Better for You?

Buying a home has a multitude of benefits and is really meant to be a long-term investment. If you are planning to be in the area for less than 3 years, perhaps it’s better to rent instead of buying, unless you have the ability to maintain a rental property. In almost all cases, it makes sense to buy instead of renting because you have more flexibility, you increase your net worth, and you build equity which you can leverage in the future. If you are considering buying real estate in the DMV region, contact Nadia Khan for a personalized consultation.