Did you know house prices in the country have increased by 5.3% per year since 1992? At the same time, rent paid by the average US household has increased by 18% over the last five years. In simpler words, if you bought an investment property recently, chances are you earned quite a lot of passive income. It’s no wonder people view properties as the ideal asset to invest in!

While there are numerous different property types to invest in, condominiums (condos) and housing cooperatives (co-ops) remain popular in places like New York City where there’s limited space for urban development.

Condos are ideal for densely populated cities because they consist of individual units built vertically within a large property complex. Similarly, co-ops consist of several people sharing ownership and living in a single property. But which one’s better to invest in?

Here’s a breakdown of the benefits and drawbacks of investing in condos and housing co-ops.

Investing in a Condo

Benefits

1. High Rent Potential

Do you earn enough to pay $7,227 per square foot of a property? That’s how much it costs to rent a space at 15 Central Park West—the most expensive condo in New York City!

Condos have a higher rent potential than co-ops because they’re typically located in affluent neighborhoods. They’re usually home to high-net-worth individuals like bankers and celebrities who can afford to pay an exceptionally high rent.

2. It’ll Appreciate More than a Co-op

One of the biggest reasons people invest in properties is because they know it’ll appreciate over time. But did you know this is a misconception?

While the land on which a structure is built appreciates with time, the physical structure of the building depreciates. The net effect is positive—which is why people still invest in properties—but the distinction is important if you’re deciding between buying a condo and a co-op. Why? Because the land on which condos are built is usually more valuable than a co-op. Therefore, the average condo will appreciate more than the average co-op!

3. It Attracts Great Tenants

Imagine renting your property to tenants that don’t clean up after themselves. It’ll be trashed before you know it! Fortunately, condos attract tenants that are more likely to be better educated and/or work in higher-paying jobs compared to co-ops.

Drawbacks

1. It’s Expensive to Purchase

 

One of the biggest disadvantages of purchasing a condo is the cost. According to the National Association of Realtors, the median price of an existing condo in the US is $340,000. However, in places like New York City, resale condos cost as much as $690,000. This amount of money would land you a three-bedroom home in other parts of the country!

2. Upgrade Costs Are High

If you’re thinking of investing in a condo that’s close to the national median price, chances are your upgrade costs won’t exceed your budget. However, if you want to buy a luxury condo that’s decked out using expensive materials like marble, you’ll end up spending a boatload of money if you want to upgrade it!

3. It’s Difficult to Sell

Condos are built to appeal to a limited number of demographics like high-net-worth bachelors and couples with no kids. Therefore, they’re difficult to sell because the pool of prospective buyers is far smaller than other property types.

Investing in a Housing Co-op

Benefits

1. It’s Easy to Attract Tenants

The structure of co-ops allows numerous people to own shares in it—which is why the cost per share is extremely low. Therefore, if you own a co-op association, chances are you won’t struggle to find members.

2. It Helps Low-income Individuals Find a Place to Stay

Did you know members of a housing co-op aren’t liable for mortgage payments? Co-ops are popular among low-income individuals whose financial background doesn’t qualify them to have ownership of other property types. Therefore, if you own a co-op association, you’ll be putting a roof over the heads of the less fortunate.

3. It’s Structured to Encourage Shared Responsibility

Co-ops are structured to encourage members to share the responsibility of things like property maintenance. Therefore, if you own a co-op association, you can rest assured your members will take care of things like daily cleaning.

Drawbacks

1. The Advantages Depend on the Number of Members

Would you rather be one shareholder among four in a co-op or one among fourteen? We wouldn’t blame you for picking the first option!

The more members a co-op has, the more shared responsibility there is. However, it also means less equity is offered to each member. If you own a co-op association, you must decide which side of this trade-off you prefer more.

2. Down Payments are High

Did you know the down payment required to buy a share in a co-op can be as high as 20%? This is unlikely to detract members if the total cost of each share is low. However, if the cost per share is high, a sizeable down payment will make it difficult to find members and generate an income if you own a co-op association!

3. Rules are Restrictive

If you’re the sole owner of a condo, you have the freedom to live how you want. However, in a co-op, there are extensive rules members must abide by. Therefore, whether you earn a high ROI from investing in a co-op association depends on your ability to attract members that are willing to abide by the co-op rules.

The Verdict

There’s no right or wrong decision when it comes to investing in a condo or a co-op. If you’ve got a lot of starting capital and you’re not looking to sell your property for the foreseeable future, it’s worth investing in a condo. On the other hand, if you think you can create a co-op association that members will love, your long-term ROI will be higher with a co-op.

Whether you’re investing in a condo or a co-op, come talk to our team at Atlantic Home Capital for financial assistance! We offer numerous types of mortgage loans such as FHA home loans for first-time homebuyers and conventional loans with low-interest rates and high loan limits. We also offer comprehensive mortgage refinancing services to help our clients improve their mortgage terms!

Contact us today and obtain expert advice on home loans from one of the best mortgage lenders in Fort Lauderdale.