When setting out to buy an investment property, likely you’ve come across homes that are listed as either freehold or condo properties. They might sound like that same thing, but there is a key difference in how the ownership of each style works.
What’s the difference between Condos and Freehold Units?
A condo means that you own the interior of the house, but share ownership of all areas outside your unit like your yard, parking lot and any common space. The shared spaces are managed by a board or corporation, similar to the way a condo high rise would be. This board takes care of all the necessary maintenance and up keep on the grounds of the property in exchange for the monthly condo fees.
A freehold is a home that is completely owned and taken care of by the homeowner. There are no monthly condo fees, and no one to help with maintenance and groundskeeping.
Pros & Cons of a Freehold Investment
Benefits of Freehold Units
- You don’t pay condo fees – this can be a money saver.
- Maintenance fees are lower – Performing tasks like home maintenance, yard care and snow removal yourself helps to reduce the expense of hiring it out and allows you to decide where your money gets spent. Often, there only “strata” fees or no maintenance fees at all.
- Freedom – Owning your own unit both inside and out means you have total control on the changes and alterations you make like painting, installing a shed or hot tub or changing your siding colour
- Perceived value – Freehold townhouses are generally in higher demand than condo townhouses so they tend to be preferred by certain people (often those who don’t mind some DIY work and are aware of out of pocket expenses that will come).
Drawbacks of Freehold Units
- You don’t pay condo fees – all repairs and maintenance, even costly ones, are now your responsibility
- Neighbours might not perform upkeep – With no condo corporation taking care of the exterior, your neighbours might let their units fall into a state of disrepair or not keep their exteriors as tidy as you do. This can affect resale value because of the quality of the neighbourhood.
- Can be more expensive up-front – Since they can be more in-demand prices may be on the high side at time of purchase. In fact, prices often rival small houses.
Pros & Cons of a Condo Investment
Benefits of a Condo Townhouse
- You pay condo fees – having a corporation to cover expenses like new windows or doors, leaky roofs and broken siding means you don’t have to pay every time repairs are needed
- No maintenance worries – since the condo board takes care of snow removal, lawn care and general upkeep you don’t have to worry about whether the exterior of your unit is taken care of.
- Confidence in the neighbourhood – with a condo board taking care of all units the same, there’s no worry that your neighbours might let their homes get messy or unappealing.
- Lower price – Generally, higher condo fees mean a lower purchase price. This balance comes from the understanding that since you are committing to a monthly investment with condo fees, there is a lower upfront investment when purchasing.
Drawbacks of a Condo Townhouse
- Maintenance fees can increase over time, which can hurt your resale value
- Less freedom – Having a condo board governing your shared spaces you are at their mercy when it comes to making changes. You need permission to add a shed to your yard, install a hot tub or firepit, plant a garden and even decorate for holidays. Following the rules might make living in or renting your unit difficult.
- No choice in management company – They are not created equal, and if you end up with one that isn’t very good, you’re basically stuck with them until the condo board decides otherwise.
- Required costs, even if you don’t used the perks – Condo fees are fixed and required monthly, even if you or your tenants don’t use the amenities and shared spaces.
- Possibility of one-time fees – Repairs like roof replacements, window replacements, fence rebuilds and road repaving can all be major expenses and if the reserve fund hasn’t been handled well, the corporation might not have the funds needed to cover the repairs. This may force you into a fee called a special assessment.
Which condo type is the best for an investment property?
When it comes down to choosing whether to go with a freehold or condo townhouse for your investment property it can be a hard decision. The most likely choice for an investment property might be to find a property that has fair fees, but also a clear description of what you get in exchange. Not having to worry about managing your property is sure to make managing your investment way easier!