A Lower-Maintenance Property Is Not Always the Better Investment
To the first time home buyer, buying a property and renting it out, sounds pretty straightforward. You just find a desirable home, collect enough rent to cover the expenses and build equity as the property’s value changes over time.
That seems like a reasonable proposition at first, but the reality is that the type of property you purchase has a major impact on how much control you actually have over the investment.
TL;DR: a house gives rental investors greater control, more income possibilities and more freedom to improve the property than condominiums do. Houses can also attract a wider range of tenants and future buyers, which makes the additional maintenance worthwhile for investors who value flexibility and long-term growth potential.
The condominium investment
At first a condo can be an appealing starting point for new investors. It generally costs less to purchase, exterior maintenance is handled by the condo board and a smaller unit can appear easier to manage than an entire house.
For an investor looking for a relatively simple rental unit, those do seem like legitimate advantages, but that simplicity comes with overbearing property rules on how the unit can be improved and used.
The single family house investment
Then there’s the single family house investment which is a completely different type of investment opportunity. Maintenance responsibilities are greater but as the owner, you control much more of the property. There are opportunities to create additional rental units, improve the layout, add more parking or make renovations that directly affect rental income and the long term investment.
That doesn’t mean every house will outperform every condo. The purchase price, location, condition and achievable rent still determine whether an investment works but a house can give an investor many more ways to adapt the property and improve its earning potential.
House vs Condo as a Rental Investment in Ontario
A house can provide more than one source of rental income
A condo investor generally purchases one unit and collects rent from one tenant or household. A house however can offer several possible rental configurations.
Ontario’s additional residential unit framework generally allows up to three residential units on qualifying residential properties.
So, depending on the property, this could include three units within the primary house or two units in the house and one unit in an ancillary structure like a garage or garden-suite.
Possible configurations may include:
- Renting the entire house to one household.
- Creating a legal basement apartment.
- Designing the house with two self-contained units.
- Creating as many as three permitted units where the property qualifies.
- Living in one unit while renting another.
- Adding a permitted garden suite or other accessory building.
This kind of flexibility lets an investor adjust the property as financial circumstances and rental demands change.
House owners have greater control over property expenses
A rental house requires the owner to budget for components like the roof, furnace, plumbing, exterior and so forth. Those expenses can be substantial, but the advantage is that the owner can control how the work is handled.
They can select the contractor, choose the materials and decide whether a non-urgent improvement should be done immediately or to included in a future renovation.
On the other hand, condo owners must pay mandatory monthly condo fees that cover things like building insurance, exterior maintenance, amenities, and reserve fund contributions. But because these fees must be paid regardless of whether the unit is occupied or not, they directly cut into monthly cash flow and leave the owner with much less flexibility over their short and long term operational costs.
Also, if the condominium corporation does not have enough money available for a major repair, owners can face prolonged delays in repairs or a special assessment, which can create a large expense without producing any additional rent in the unit.
House maintenance is not necessarily cheaper but it does give the investor greater control over:
- When non-emergency work is completed.
- Which contractor performs the work.
- The quality and cost of materials.
- Whether an improvement could support rent increases.
- How the property is maintained for eventual resale.
- Option to self-perform the work to save money.
- Ability to optimize utility expenses.
A house is not governed by a condo board
Ontario condo owners and their tenants must comply with the condominium’s bylaws and rules. These documents regulate pets, the number of tenants, smoking, window-coverings, parking, noise, renovations and short-term rentals among other things. They override any decisions the condo owner wants to make.
A condominium can also be affected by decisions made after the purchases the unit. Things like changes to the building rules, increased condo fees or newly added restrictions can all alter how the property can be marketed and used.
While a house is still subject to provincial and local bylaws, a house landlord only answers to Ontario’s residential tenancy requirements and completely get to completely skip the additional layer of rules and restrictions imposed by a condo corporation.
This is one of the biggest reasons investors choose houses over condos as their investment property.
Houses can appeal to family-oriented tenants
Across the board, family oriented renters prefer to raise their family in a home that’s larger than an apartment style condo.
House features that are attractive to family households include:
- More privacy.
- Multiple bedrooms.
- Lots of interior space.
- A private entrance.
- Driveway, garage and/or street parking.
- Private outdoor space.
- Multiple floors.
- Additional storage.
- Space for children, pets and a home office.
- Proximity to schools and amenities.
The bottom line is that a house can accommodate spatial needs that a typical one or two-bedroom condo simply cannot satisfy, and as their personal situations improve, tenants are far less likely to outgrow a house which results in much lower turnover rates compared to condo rentals. This is another strong selling point that convinces investors to consider houses over condominiums.
A house offers more ways to increase its income potential
A condo investor can indeed renovate the interior of their unit as long as the work complies with the corporation’s requirements. The owner generally cannot do things like change the building exterior, add parking spaces, create another dwelling unit or even change their balcony design. In many instances, condo owners cannot even change the colour of paint on the walls.
A house offers considerably more room for improvement and depending on the property and local regulations, an house owner can:
- Finish an underused basement.
- Optimize the water and plumbing system.
- Add an additional bedroom or bathroom.
- Create a separate entrance.
- Install an independent laundry room.
- Improve sound separation between units.
- Add and/or reorganize parking.
- Build an external addition.
- Create an additional residential unit.
- Improve outdoor areas for tenant use.
You can see why investing in a house as a rental property is much lucrative more than what a condo investment can offer.
These types of projects benefit the owner and allows them actively improve the property’s rental income instead of having to rely on market-wide rent and price increases.
Owning the land creates future options
A house purchase generally includes direct ownership of the land beneath and around the build. That land does not guarantee a stronger appreciation value but it does provide options that are unavailable to the owner of a condo apartment.
A suitable property could eventually support a home-addition, a garden suite, redesigned parking spaces and overall redevelopment.
Even if the owner does not plan to make those changes immediately, the future flexibility becomes valuable as municipal planning policies and housing needs evolve.
For more information you can read Don’t Buy A Condo In Ontario, Buy a New Construction Build to see why investing in a house in the suburbs is more attractive than buying a condo in the current rental market.
A house attracts many more types of buyers at resale
If a time comes to sell the house, you’ll be attracting a much wider sphere of buyer types than you would with a condo sale. A house with a practical layout and desirable location will usually appeal to several groups of buyers, including:
- Families looking for a principal residence.
- Investors searching for rental income.
- Buyers who want help covering their mortgage.
- Multigenerational families.
- Owners interested in future renovations or redevelopment.
And while condo sellers usually compete against identical units, a house seller can more easily leverage these diverse buyer pools by differentiating the property by its lot size, parking options and custom renovations, and at the same time be able to drive higher demand while potentially securing a better exit price.
Your tenant’s violations can become your problem
In a condo, tenants must follow the condominium corporation’s declaration, rules and bylaws. If there are complaints, the owner may receive warning letters and be expected to address the tenant’s conduct. This takes double time as you end up dealing with the property managers and the tenant at the same time, instead of addressing the tenant specifically.
If the corporation incurs eligible costs while enforcing its rules or repairing damage, those expenses will be charged back to the owner’s unit. Depending on the circumstances, that could include repair expenses or costs connected with obtaining compliance all of which you have no control over.
The condo board also cannot necessarily make the problem disappear by evicting the tenant. Instead, the rental owner will have to follow Ontario’s residential tenancy process to enforce the lease or pursue an eviction.
This can leave the investor dealing with 4 entities; the tenant, the property management, the condominium corporation and the Landlord and Tenant Board (LTB), all at the same time. Doesn’t that sound exhausting?
So is it a Condo or a House?
You have to make the final decision, but we’ve definitely laid out some truly viable reasons that buying a house as a rental investment is a much better choice than buying a condo, and is much more advantageous.
If you live in Haldimand Norfolk and are exploring your investment options in the housing market, contact Keesmaat Homes to get you started in the right direction. We’ll help you build your custom home or you can view our inventory of new homes to find a property that fits your investment plans.
