Pick Your Best Investment as a Residential Buyer
By Norris Minick
In a recent post
, we presented some data on a gap that opened up between 2002 and 2010 between condo/townhome prices and prices for small single family homes. Then we noted that this gap narrowed substantially in most local communities over the past few years. This raises a question: If buyers see a price gap opening up, does it made sense to buy a condo or townhome, rather than a single family home, to maximize the potential of their investment? How do you pick your best investment as a residential buyer?
Condos Did Better than Houses
Looking back, our data shows that you would probably have done better with price appreciation had you bought condos rather than houses. This assumes you'd invested broadly across all the markets we cover 2008 or 2011 for example.
- From 2008 to June of 2016, small houses increased in value by an average of 61%, where condos/townhomes increased by an average of 69%...a difference of 8%.
- From 2011 to June of 2016, small houses increased in value by an average of 62%, where condos/townhomes increased by an overage of 76%...a difference of 14%.
So, had you decided to buy a $300,000 condo in 2011 rather than a house, you'd be $42,000 ahead of the game, right? Well, yes, ON AVERAGE. But the average shift in the market is rather meaningless. The question is what would have happened in the specific market you purchased in.
And if you'd bought your $300,000 condo in Boulder, Gunbarrel, Superior, Erie or Westminster, you'd be smiling. Your condo would now be worth...ON AVERAGE...$360,000, $372,000, $345,000, $450,000 or $366,000. You'd be less excited if you'd bought in Lafayette, Longmont, or Arvada. In those areas you'd have done 8%, 5% or 3% better if you'd bought that small single family home.
And, of course, the edge you gained by buying your condo/townhome in the right place at the right time would only play out in your favor if:
- The gap we noticed between the small house and condo prices actually narrowed, rather than continuing to expand.
- The complex you purchased your condo in appreciated at or above the rate characteristic of the community as a whole.
- If you sell your condo before the condo market softens again and the price gap reopens.
The Real Issues
On the surface, you can try to predict where to best invest your real estate money using market statistics. Usually, it becomes an argument for focusing on other more important issues. If you're buying the property to live in, it makes sense to focus on what kind of lifestyle and quality of life you want. This approach will bring more satisfaction than trying to guess where you'll get the best appreciation on the investment. For one thing, you're better able to predict that.
The same really applies for a pure investor. The stats can't really tell you what to invest in or where, so focus on location, ease of management, or cash flow. These are real life benefits that may be more valuable than trying to pick the property that will appreciate most. Pick good properties in good locations in good markets. Pick properties that will be easy to manage, need minimal repairs, or provide reasonable cash flow. Don't try to pick the properties or markets where you'll maximize appreciation. That's easy to see in retrospect, but the glass is fogged going forward.