Single-Family Homes Versus Condos: Which is the Better Investment?

Today, we are diving into a debate I hear often as a Portland realtor: single-family homes versus condos for investment properties. Which route is the most hassle-free? Which will lead to the best return on investment? Which is the smarter investment?

 

Before we dive in and answer those questions — if you are beginning your property investment journey or are new to the Portland market, reach out. Let’s chat! I love helping my client’s make smart decisions about where to place their money in the real estate market.

 

Alright, let’s get into it!
 

Condos: Lower Upfront Cost & Higher Risk

 

Condos are a tempting investment for a great many reasons. Particularly, condos have a lower up-front cost, relatively low-maintenance (in most cases), and decent appreciation.

 

Cost is one of the greatest barriers to real estate investing, which makes condos a great, affordable choice. The average cost of a single-family home in Portland is $602,000, while the average cost of a Portland condo is $430,000. That’s a 33% difference in upfront costs, ideal for first-time buyers looking to build equity!

 

Unlike a single-family home, landscaping and exterior maintenance are often taken care of by a HOA (more on this later), which makes it ideal for renters and those not interested or able to contend with exterior home upkeep.

 

How about return on investment? Condos also have appreciated 9.9% (nationally) in the past year, which is pretty great!  Factors that affect appreciation, especially of Portland condos, include:
  • Accessibility — check out the Walk, Bike, and Transit “Score” of a property here!
  • Amenities — how many grocery stores, restaurants, bars, schools, community hubs, ect. are there nearby? Additionally, what amenities are available on the property (pool, gym, grilling area)?
  • Noise pollution — close to a busy highway, bustling city street, or long-term construction?
  • Maintenance — how well is the property being maintained, regardless of the property’s age?

 

For more information on what factors affect return on investment and appreciation, check out my blog, 3 Things to Consider When Looking for an Investment Property

 

However, condos can certainly come with drawbacks. One of the first that come to mind are the pesky HOA fees and rules. Fees can typically range between $100-$700 per month. Why such a wide range? Because these fees are based on what is covered; some HOA fees cover exterior and landscape maintenance while others include utilities, security guards, and reserve funds. HOA’s can also come with many rules, from prohibiting leasing or short-term rentals, to noise ordinances and more.

 

Beyond HOA fees, there is the potential for special assessments — added fees that often sneak up on owners of condos or homes belonging to HOAs. Special assessments strike when an HOA reserve is depleted after an unexpected occurrence (damaged roof, broken elevator, or other unexpected large expenses). These special assessments may be stacked on top of normal HOA fees until the debt of these lump expenses are resolved.

 

Single Family Homes: Double-up Income for Better Return on Investment

 

Now, let’s compare the pros and cons of single-family home investments. Single-family homes appreciate faster, turnover of tenants are less frequent, and you (generally) don’t have to worry about HOA fee.

 

Because the demand for single-family homes is greater in the Portland area (and across the nation), which directly impacts the rate of appreciation! Additionally, Investing and leasing out a single-family home comes with a sense of security. As an investor, vacancies will generally be less frequent, compared to a multi-family condo. That being said, vacancies of a single-family home will have a more significant financial impact. If you rely on the passive income of your investment property, an unexpected vacancy may be a significant bump in the road.
Now, let’s dive into how to make the most of your investment property and yield the return on investment!

 

You’ll find the most success investing in properties with two streams of income. This includes duplexes (where you may occupy one side and rent out the other) and homes with potential for an accessory dwelling unit (ADU) in the basement or guest house. Essentially, renting a portion of the property generates passive income, allowing for:
  • Quicker mortgage payoffs
  • Money to invest back in the property through renovations, updates, and necessary maintenance
  • Tax deductions. The IRS allows for write-offs of half of any expense that benefits both sides of the duplex or ADU.​​
Check out a few stories of my investment clients and their duplexes!

 

 

Let’s break it down: Condos vs Single-Family Homes

 

Condo investment “pros”
  • Lower upfront costs, great for first time buyers
  • Generally lower maintenance with fewer individual expenses
  • Steady appreciation rate

 

Condo investment “cons”
  • HOA and special assessments fees may prompt unexpected costs
  • HOA regulations may prohibit subletting or short-term rentals

 

Single-family investment “pros”
  • Greater appreciation rate
  • Less frequent turnover of tenants
  • Generally no HOA fees!
  • Potential to invest with two streams of income for quicker mortgage payoffs, extra income for property renovations, and tax deductions!
Single-family investment “cons”
  • Greater upfront cost
  • Maintenance and renovations are on your plate, not an HOA’s
  • Greater financial impact of vacancies

 

I would love to help you start — or continue — your real estate investment journey. Whether you are starting from the ground up or have a few investments under your belt, reach out. And for more investment tips, follow me on IG! @marissasainz

 

Looking forward to chatting with you!