If you’re thinking of purchasing an investment property, you may be looking at buying either an apartment or a condominium. Often, these terms are used interchangeably, but there are significant differences between them. In this blog post, we aim to educate readers on what these important differences are in order to help them make an investment decision.
First, the Similarities
Often, the setup of a condominium property and an apartment community is similar. Both types of facilities will have similar amenities and locations to offer tenants. Both types of units may come with benefits such as common green areas, a pool, garbage disposal, playgrounds, gyms, and more. But this is where the similarities end.
A Homeowner’s Association, or “Condo Complex”
In a condominium complex, all the owners have purchased substantial ownership within a common-interest community. Owners will typically purchase the condominium outright as they would do with a house and then may choose to rent the unit to individuals. The transaction will be covered by a lease agreement. Owners are required to maintain the property as well as pay monthly dues to the HOA on behalf of their tenants for the upkeep of the community. Owners share responsibility with other owners to properly maintain the property in terms of landscaping, road maintenance, building maintenance, cleaning, upkeep of common areas, safety and security, and other factors.
In an HOA, essentially, all units are owned by individuals or companies, who are then beholden to the HOA’s board of directors to uphold the rules of the community. Ownership of a condominium complex is spread out and varied, changing slowly as individual unit owners change and boards of directors change personnel, often through elections by stakeholders.
Apartment Complexes
Apartments are different primarily due to the way they’re owned. An apartment complex is usually owned by one company or individual that runs it for profit by renting units out directly to tenants. The owner of the building, therefore, assumes all the responsibility for all units. There is no homeowner’s association involved, and the owner can set the rules for tenants broadly across all units. Ownership of an apartment building can change suddenly and rapidly if the building or buildings are sold to a new buyer, and there is no “democratic process” for sharing responsibility for property upkeep as there is with an HOA.
Cost is a significant difference between the two choices. In an HOA, you are purchasing a single unit and sharing costs with other owners. If you’re purchasing apartment units, you’ll be responsible for all property maintenance costs inside and outside the building.
A Few More Points…
In an HOA, the Association has no legal obligation to the tenants directly and the tenants have no rights as it pertains to the large community. There is a contractual obligation between the tenant and unit owner, and then separately, between the unit owner and the association. This means that the unit owner will be solely responsible for the actions of their tenants. It also means that any repairs, maintenance or requests must go to the owner exclusively, and then the owner can then bring it to the association. Under no circumstances should a tenant be making maintenance requests to the association or communicating directly with property management in an HOA. As such, renting in an HOA is not exactly a “passive investment.
Moreover, to some extent, an HOA’s health is determined by the ratio of owner-occupants to investors/renters. The more investors/renters in an HOA, the less “healthy” the HOA is. In general, owner-occupants take care of and are more invested in the community than tenants, this leads to a better community and quality of life overall. We generally discourage investor ownership in the communities we manage, with some rare exceptions. We find that the fewer renters in a community, the fewer problems there are, and the better the quality of life for all residents.
Which Investment Is Right for You?
The answer will generally lie in how much time and money you’re willing to put into the property management of your investment. It’s a good idea to consult with a property management company that can help you decide how much responsibility you want, or don’t want.
Paladin Property Management offers management of day-to-day operations for HOA client associations, including reserve studies, maintenance requests, communication, collection of common charges, payment of vendors, bookkeeping, rule enforcement, resale packages, and construction projects, as well as any other routine administrative responsibilities. For more information or to contact us, call 860-395-8863 or visit our website.