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Taxes and Why Investing in Condominiums Beats Investing in Houses

Updated on August 13, 2013

Number 1: The savy future millionaire real-estate investor appreciates savings through depreciation

When thinking of ways to become rich think of tax savings which are of importance to all investors, and especially to all future real estate condo millionaires.

When one buys a $120,000 house and a $70,000 condo, which one provides more depreciation on income taxes assuming there is no land ownership with the condominium and assuming that the land is 60% of the value of the house?

Answer: the condo!

With the house value of $48,000 one can depreciate the property as follows:

$48,000/27.5 years=$1745.45 per year. In 27.5 years this is 27.5 X $1745.45=$48,000

With the condo one depreciates the entire purchase price over the same 27.5 year period:

$70,000/27.5= $2545 per year. This means that over the 27.5 years of owning both properties one will shelter $22,000 more of income from taxes when owning the condominium!

Number 2: A Real Estate Millionaire Listens To Their Condominium Neighbors

If a tenant starts making trouble the landlord will hear about it as the homeowner associations are filled with busybodies who are very snoopy. If the tenant does something out of line the homeowner association will send a MEMO to the landlord.

This is a good thing because it gives the landlord time to do something about the troublesome tenant before it escalates to cause greater trouble. For example, if a tenant that is involved with illegal drug activities, the landlord may have some culpability knowing about it and doing nothing about it.

If the landlord doesn't know about it, then there is such a thing in the law whIch says the landlord "knew or should have known". The future millionaire landlord will not want to be caught in the "should have known" part or they be fined or worse the government can confiscate the property.



Number 3: Capital Costs- Watching Expenses So One Can Afford to Purchase More Condos in the Near Future and Become a Millionaire Condo Investor Quicker!

When it comes to putting on a roof, it's usually cheaper to buy a roof for a condo than to buy a roof for a house.

A roof may cost $6700 for a house compared to a cost of $2500 for a roof on a similar-sized condo is a big difference. Most people are able to come up with $2500 than with $6700.

Number 4: Regular Maintenance

Everyday maintenance is managed by the homeowner association and not delayed.

Gardening and landscaping are expenses and expensive. Sometimes tenants want to garden and landscape a house. Sometimes they say they want to and they don't.

Either way the future millionaire condo landlord has the option of paying a gardener. One landlord had a gardener and was paying that gardener to do the house landscaping, and then one day the landlord visited the house and saw that the gardener was not gardening....at ALL!

The "no-gardening gardener" caused the landlord to have to hire someone to fix things and pay them EXTRA to catch up on the maintenance because now the maintenance on the home was deferred and behind. This unintentional "delayed maintenance" will not happen with the neighborly neighbors of the standard homeowner association. The homeowner association will usually make sure the gardeners garden and the painters paint.

Numbers 5 and 6: Plumbing And Electricity

Plumbing

Now there can be a fair bit of debate about plumbing.

If the plumbing between the walls leaks in a condo guess who replaces it? Most of the time it is the association. It is their job to fix the plumbing. It is the landlord's job is to relay the phone call that the tenant made that the plumbing in the walls was leaking.

Likewise If the septic on a house needs pumping, that $600 is the landlord's bill. If the wiring needs redoing that is the landlord's bill.

Electricity

Some investors know about electricity; many don't.

One knows electricity has to be done right. Can the landlord shop and research the reputations and prices for contractors? Sure. But many landlords have others things they would rather do or which are more profitable. When one owns a condo one can call the homeowner association and say, "um...this is so and so and my tenant said the lights are out on the garage. Could you please check on that?"

Number 7: Demographics Favor Getting Rich Through Condominiums

---The USA and much of the world has a population of oldsters getting older who need good condominiums located conveniently to transportation and medical facilities.

Condos are also good for students, newly separated people, people who are "between" their professional jobs who are downsized and cannot afford a great big house.

Condominiums are the future. Will they appreciate? Maybe. But that's OK since there is more depreciation with condos than with houses that cost twice as much. It's better for the taxes and it allows the future millionaire investor to save to invest in another condo.

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    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Hi Amber Vyn-why, thanks for your nice comments. I have heard Denver is also changing as far as inner city and condo desireability. Really...for me two weeks of yard work when I owned a duplex in my twenties was enough for me....clipping those bushes that grew and grew and grew.....!

    • Amber Vyn profile image

      Amber Vyn 

      6 years ago

      Very interesting hub! Here in San Antonio, buying a condo usually meant that you owned it for life - no one else would ever buy it.

      However, that's changing now. More condos are being built in the city center, and the benefits such as no yard to maintain and the ability to travel without worrying that the place looks obviously unoccupied are real bonuses.

      This hub definitely is a game changer!

    • Millionaire Tips profile image

      Shasta Matova 

      6 years ago from USA

      This is very interesting. I just started investing in real estate, and hadn't considered getting a condo instead of a single home. Voted up.

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      H JS--there are some postves to havng smaller assocatons: it keeps things more transparent. I know of one assocation where things are being controlled by the outside manager and the manager fudges the votes and more-a real mess. The condo I have where the owners manage it is possibly the best managed one...no perfect world yet-but the owners still have to be involved......thanks for reading and commenting!

    • JSParker profile image

      JSParker 

      6 years ago from Detroit, Michigan

      As an owner of two rental properties, one condo and one single family home, I enjoyed reading your article. If I might add a couple of things from my experience: one-story condos would be a better investment for the aging baby boomers (mine is 3 stories!). Be sure the condo development is large enough to afford a first-rate management company who takes care of everything. (Our condo development has only 12 units so funds are more limited and occasionally the condo association board has quite a bit of work to do.) Finally, evaluate the level of maintenance the development requires. Builders and developers do not necessarily build for future ease of maintenance, which increases the costs down the road to the owners. (For example, our development has a lot of driveways and stairs to maintain.)

      One last suggestion: check the by-laws of the association. Many specifically prohibit using condo units as rentals. So, if you plan to invest, it would be to flip the property rather than use it as a long-term rental.

      Voted interesting and useful. I thought the format of your Hub was very effective. Best wishes!

    • torrilynn profile image

      torrilynn 

      6 years ago

      Doodlehead,

      thanks for the information

      I would have never thought there to be such a difference

      Voted up

    • Paul Kuehn profile image

      Paul Richard Kuehn 

      6 years ago from Udorn City, Thailand

      Doodlehead,

      This is a ver informative hub, and as an investment, I can see the definite advantages of owning a condo over a house. Maintenenace expenses and dealing with tenants as the owner of a house can really be cumbersome from my past experiences, especially when you make the mistake of getting an untrustworthy person to handle the property management. Voted up as very useful and sharing. Also Pinning

    • Brett.Tesol profile image

      Brett Caulton 

      6 years ago from Asia

      Very interesting. This is something that I have been considering, but hadn't really considered the tax savings ... a nice point!

      Shared, up and useful.

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Hey Alcosin---at the rate you are turning out hubs, you will be investing in lots of real estate quite soon!

      Thank you for the comment.

    • alocsin profile image

      Aurelio Locsin 

      6 years ago from Orange County, CA

      Your analysis has convinced me. If ever I invest in real estate, I'll look at condos first before houses. Voting this Up and Useful.

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Thanks for reading, Jamila---it is sort of against the 'grain" to propose that condos beat houses, and surely everyone must decide what works best for them. I can say condos are less stress for me than houses have been!

    • jamila sahar profile image

      jamila sahar 

      6 years ago

      many thanks for sharing this valuable information, i am interested in investing in real estate, so this hub is very useful to me, voting up, useful and very interesting !

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Thank you Healthylife, CollageIndia, Nikkiraeink-for reading and liking.

    • healthylife2 profile image

      Healthy Life 

      6 years ago from Connecticut, USA

      This was so interesting and explained well. I always thought a d house was the best investment.Voted up!

    • collageindia profile image

      collageindia 

      6 years ago from Delhi, India

      Great tips into this hub content is absolutely great & informative.

    • collageindia profile image

      collageindia 

      6 years ago from Delhi, India

      Great tips into this hub content is absolutely great & informative.

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Nice words. Thank you.

    • Becky Katz profile image

      Becky Katz 

      6 years ago from Hereford, AZ

      This is a well written and easily understood hub. You have made some very good points. Good work on it.

    • Doodlehead profile imageAUTHOR

      Doodlehead 

      6 years ago from Northern California

      Thank you Hawaiian Scribe-I too do live in a condo...I come and go a lot too and since it is gated and the door is pretty solid metal, I feel ok about going away and leaving it.

      So true too about reserves; here in California we have a law that a reserve study must be done periodically. I think it is a good law. Thanks for the follow too.

    • nikkiraeink profile image

      nikkiraeink 

      6 years ago from So. Cal.

      Awesome hub! Just bought a condominium that I intend to use as an investment property eventually. Made me feel good about my purchase. Voted up.

    • Hawaiian Scribe profile image

      Stephanie Launiu 

      6 years ago from Hawai'i

      Thanks so much for your hub! After years of thinking that 'single family' was the only way to go, my husband and I love living in a condo. It's quite a burden off the maintenance of a home. I would make a suggestion to anyone considering buying into a condominium development to attend 1 or 2 of the association meetings before you buy, if they'll let you. The owners' association and the way decisions are made at the meetings will have an important effect on your future. You'll get a good feel of how it will be to live in the development by attending a few meetings & observing. Also, research the financial condition of the association because, as an owner, you could be liable with all other owners if reserves aren't enough to cover unexpected expenses. The benefit you brought up about depreciation is really a good point, too. Thanks again for your hub. Voted up, useful, interesting.

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