Buying a Condo vs. Renting an Apartment: What's the Difference?
Living in a condo has plenty of perks. They're often modern, spacious, conveniently located, and loaded with all the features anyone could want. But how can those moving to a new area decide between renting an apartment and shopping for condos for sale? It's a common dilemma, and while the decision depends on an individual's current financial situation and future plans, there are a few pointers to help potential buyers and renters decide. Keep reading to learn about the differences between renting an apartment and buying a condo.
How Expensive Is Rent vs. a Mortgage?
Renting is often considered cheaper than mortgage payments. That said, buying a condo could be more affordable in the long run, especially if the homebuyer chooses a loan with optimal interest rates.
Before any new homeowner excitedly signs a condo contract, they should use a rent vs. buy calculator to work out the cost of renting vs. buying a condo in a year or two. If the average cost is almost the same, then buying a condo not only makes more financial sense, it also comes with multiple benefits a person would otherwise miss out on when renting. For instance, buying a condo means permanent unit ownership in a well-planned community.
But, if a condo mortgage is more expensive, consider the situation; for instance, how long the occupant will live in the area and whether their income can support them through the mortgage payments (a mortgage calculator can help with this). In most places, the longer a person is likely to stay in the same condo, the more financially sensible buying is over renting. Renting might only be the more affordable option if the renter is planning to move on within a year or two.
Condos Can Generate Passive Income
Even when moving out in a few years, a condo remains one of the best investments one can ever make. Unlike renters, condo owners can rent out their units to short-term tenants and gain extra income while still using the condo for personal vacations. Renting a condo short-term also means the owner can adjust rates during the peak seasons and gain even more profits.
Some condo owners can even become long-term landlords. Long-term rental income can cover the condo maintenance and management tasks on the landlord's to-do list while providing a consistent source of profit. It also comes with less tenant turnover and fewer operating expenses—long-term tenants are often more willing to contribute to the maintenance and take better care of the condo property because it's their home, rather than a stopover.
Simply put, condo buyers make a lifelong investment they can earn profits from, regardless of whether they're renting short-term or long-term. And when they do decide to sell, they're assured of good returns since real estate tends to appreciate.
Renting Has More Flexibility
While buying a condo certainly has appealing perks, renting offers a bit more flexibility. With renting, a renter needs to put down the security deposit, typically equivalent to the first month's rent. This makes renting more approachable than buying for many, as saving up for a 20% down payment can turn out to be a challenge for some.
Also, the maintenance responsibilities of condo owners can be taxing. Renters have the benefit of not dealing with them. What's more, unlike buying, renting a condo is not a permanent investment, meaning renters can pack up and go as long as they've issued a month's notice. This offers renters the flexibility to accept new opportunities as they pop up and enjoy exploring different destinations until they find one they truly feel at home in.
Buying Builds Equity and Gives More Freedom
The most significant advantage of buying over renting a condo unit is that owners can build equity. With every mortgage payment a homeowner makes, they reduce their mortgage debt and take another step towards complete ownership by reducing their principal and increasing equity. For instance, by paying a larger down payment, homebuyers automatically increase their share value in the condo's ownership and reduce their debt.
The higher the owner's equity, the better they can use it to borrow loans for a second mortgage, home improvements, or even for debt consolidation. Building equity also means a homeowner can resell the home at a profit in the future, making buying an even better decision.
Additionally, there are certain privileges that condo owners enjoy over renters. For instance, condo owners are often free to design and alter their condo's interior how they deem fit. Ownership also comes with more home security and peace of mind since one doesn't need to worry about increasing rental rates or unexpected landlord evictions.
Pros and Cons of Owning a Condo
There are a number of pros and cons to owning a condo that potential buyers should be aware of before making a purchase.
Pros of Condo Ownership
- Condominiums can be less expensive than detached homes, especially if you want to live in an urban area.
- Maintenance and repairs are often the condo association's responsibility, which can save money and time for the owner.
- Condos often have a number of amenities, such as swimming pools, fitness centers, and security systems, which may not be available in a detached home.
- Condo ownership can offer a sense of community that can be lacking in other housing options.
Cons of Condo Ownership
- Condominiums may be subject to rules and regulations set by the condo association, which can include limits on renting, pet ownership, and noise levels.
- The monthly condo association fee can be expensive and may increase over time.
When considering a condo purchase, it's important to weigh the pros and cons to make sure it's the right decision for you.
Would You Rather Own a Condo or Rent an Apartment?
While buying a home or renting an apartment is mainly relative to one's situation, each option has pros and cons. For instance, buying a condo unit means condo owners can get a lifelong and profitable investment. Even better, it offers the peace of mind of knowing common renting woes like rent increases are a thing of the past. However, condo ownership might not be for everybody. Those jumping into the real estate market need to carefully weigh their options using the tips listed above before making up their minds.