Which Housing Type Investment Is Better For Rentals – House, Condo, or Townhouse?

Real estate gurus agree that real estate investment has made many investors billionaires. It is a sensible investment, but you need to gain in-depth knowledge before entering into any property deal.

Which housing type investment is better for rental?

There is plenty of housing choices in Destin, FL. First-time homebuyers find it overwhelming to choose the kind. Each dwelling style – detached homes, condos, and townhouse has its advantages and drawbacks. As you are planning to buy a rental then you need to consider how much maintenance is involved. As a landlord, you will need to know your way around a toolbox, some plumbing skills, and even find reliable tenants.

If you are busy then hire a property manager to handle your rental property needs. 

  • Detached home – It offers the owner the most freedom. It is a free-standing structure ranging from small to a manor size. No neighbors share walls. You own the land under it and around it. 
  • Townhouse – It is a narrow, multilevel house attached to another house on the street. Townhouse owners own the land underneath their home including the back or front yard the residence includes. Owners need to pay for the community’s common area insurance & maintenance to the homeowner associations. Owners are liable for the repair and exterior townhouse maintenance. 
  • Condominiums – Condos are less costly than townhouses because there is no land ownership. The land around and underneath is regarded as a common area, which every condo owner collectively owns. The condo owner has to pay high HOA fees to cover exterior maintenance, and insurance coverage for costly things like elevators, roofs, parking structures, and services like snow and trash removal. 

The decision to buy a rental housing style depends on cost and convenience. If you are just starting to build an investment portfolio then the first thing to bear in mind is that earning income from rental property investment is not a glamorous task but needs hard work and confidence. 

Investing in Apartments vs Investing in Single Family Homes | Mashvisor

Some serious tips

  • If you are not the handy type then investing in a rental home is not a good idea because there are regular maintenance headaches and hassles. If you think hiring a property manager to maintain the rental home or condo then it will turn out to be pricey. 
  • If you already have unpaid medical bills, student loans, or kids on the way to college soon then buying a rental property is currently a bad move. 
  • If you have 20% against down payment then only think about rental property investment. An investment property needs a large down payment in comparison to an owner-occupied home. Besides, there is no mortgage insurance accessible on rental residences. 

Find the right location

No one desires to get trapped in a rental housing situation. Therefore choose a region, where the population is crowding or has a futuristic revitalizing plan. This is a great investment opportunity.

In Destin, condos for rent range from $1200 to $3000 depending on the number of bedrooms, size, and location. To get an idea visit the DestinFlorida website, a platform that offers information about vacation homes or condo rentals, restaurant lists, and book adventure directly to enjoy Destin beaches. 

Buy versus finance

Buying with cash is undoubtedly great. You can generate an optimistic monthly cash flow. For example, the cost of buying a rental property is $200,000. The landlord can see 9.5% annual earning on their investment. 

With financing, if the investors pay 20% with 4% compounding interest on a mortgage then the earnings add up to 27% but cash flow for the investor is low. It indicates that cash buyer earns a lot less than finance support.

Rental property mortgage

The rental property mortgage approval process is similar to a primary residence loan. The key difference is high interests and strict underwriting standards. For approval lenders will need –

  • Minimum credit score – 620 [The higher the credit score the lower the interest rate]
  • Minimal 20% down payment
  • Debt to income [DTI] ration must fall between 36% – 45%
  • Sufficient savings to cover 3 to 6 months of loan payments including interest, principal, taxes, & insurance.

Expected cost

An investor has to set an aim of 10% ROI. Annual maintenance cost can be estimated at 1% of property value every year. Other costs included are –

  • Homeowners insurance & even landlord insurance
  • Property taxes
  • HOA fees
  • Monthly expense against landscaping, pest control, and potential monthly repairs.

Unexpected costs to consider

You will need to keep 20% – 30% of rental income aside for emergency issues that crop up like flooding due to hurricanes. 

Is buying a condo a good rental property investment?

Condos are good as they are affordable and often situated in desirable locations. Condos accompany few maintenance demands because owners are not liable for taking care of building exterior and common areas. Condo financing is tricky than a home. 

Lenders may look for a minimum of 50% owner-occupied units as well as the performance of the HOA. You will also need to consider special assessments [overall building health and not just the unit] because even if you can handle the monthly loan payments, but there can be a problem. For example, if the building needs a new roof then you may need to pay in thousands. 

Get familiar with the legal obligations as a rental owner

Gain knowledge about landlord-tenant laws associated with your locality and state. You need to gain awareness about your obligations and tenants’ rights regarding lease needs, security deposits, fair housing, eviction rules, etc. to avert any kind of legal dilemma. 

Destin Florida is a great vacation destination, so vacation rental condos or homes are in huge demand. It is a beach town that offers myriads of entertainment and adventurous opportunities. It is not just a must-see destination, but even a great county for rental property investment. 

Rental property income is passive but tenants can be a handful at times. Florida property values are increasing, so is a good asset investment in comparison to the unstable stock market. Interest paid on rental property mortgage is tax-deductible.  Have realistic expectations!

 

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