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Real estate investor Graham Stephan has regularly touted buying properties as a great way to build wealth. He hasn’t said that as much due to rent looking more affordable than a mortgage at this stage, but he recently revealed one type of real estate investment that you should avoid.
“Condos, just in and of themselves, are terrible investments,” he said in a recent TikTok.
Stephan didn’t end it there. He compared condo returns to the gains you can typically expect from a single-family home, and the gap has gotten larger over the years.
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Stephan said that single-family homes will win nine times out of 10 compared to condos. The only exception is if you bought a condo in a booming area, but Stephan referred to these instances as buying a winning lottery ticket.
One of the biggest benefits of a single-family home is that you own the land. If you buy a condo, you only own your unit. However, single-family homes come with land, and many buyers are willing to pay extra for more land, especially if they want to start large families.
Most condos also have homeowners’ association fees, which don’t go away after you have paid off your mortgage. Some HOA fees are higher than monthly mortgage payments, and these fees can go up each year. On the other hand, mortgage payments remain the same if you took out a fixed-rate mortgage.
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Stephan didn’t stop with condos. He also said that the numbers currently don’t make sense for buying a home instead of investing in a property. He looked at the Las Vegas housing market and determined that home prices would have to drop by 35% to 40% to have the same monthly mortgage payments as the current monthly rent payments.
He then said it is cheaper to rent unless he can get a 40% discount on the house. Then, he doesn’t have any overhead expenses, and you don’t need a massive down payment to rent a property, either.
Stephan said that if he were moving right now, he would rent instead of buying a house. Buying a house may be more attractive when rates go down, but you can currently save money renting instead of buying. However, some people may prefer to buy a house anyway to raise a family or build equity.
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Real estate investing made more sense a few years ago, before the Federal Reserve cranked up the money printer during the pandemic. Interest rates were also much lower.
“Bought my condo in 2020. No complaints,” one person commented on Stephan’s video.
Buying almost any real estate in 2020, even a condo, would have been profitable. However, the condo investor may have scored a higher return with single-family real estate or an index fund. A rising tide lifts all boats, but when it comes to assets, some are lifted up higher than others.
Stephan isn’t as bullish about real estate right now. He’s waiting for prices to go down before he makes his next move. However, looking at historical returns of assets and knowing the catalysts can ensure investors are ready to pounce when opportunities become available.
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This article Graham Stephan Tells People To Stay Away From This Type Of Real Estate Investment originally appeared on Benzinga.com