Rental Investment 101: Townhouses VS Condos
If you are thinking about investing in a rental property, it is important to understand the differences between different types of properties and make sure you are choosing the right type to give yourself the chance to get the best return on investment. Generally, it comes to one single question: townhouse or condo? And the difference between a townhouse and a condo comes down to one word - ownership. What you own, what you are responsible for maintaining, and what living space you must share can vary between the two types of properties.
What exactly is a townhouse?
A townhouse or townhome is often a part of a row of uniform homes, two stories or taller, and shares one or more walls with other independently-owned units. Residents own their interior and exterior walls, lawn, and roof, as well as the insurance for both their home and property.
Responsibilities when owning a townhouse
When owning a townhouse, the owner is responsible both for the exterior of the home and the land around it. The shared spaces in townhouse communities are often much smaller, compared to that of a condo. This means the costs associated with the HOA are significantly lower. HOA will still handle things like trash removal and snow plowing. It usually also regulates things like house color, roof type, and even mailbox style.
What exactly is a condo?
A condominium is usually a single building or a community of buildings with separate units owned by individuals. Condos can vary in size or style, but they often share walls with neighbor units. Residents own and maintain the interior of their unit but don’t own the property on which it sits. The exterior, lawn, and shared spaces are maintained by the HOA.
Responsibilities when owning a condo
HOAs of condos control more space inside developments, thus HOAs fees are higher. They will take care of the roof replacement or parking lot pavement as the resident is not responsible for this maintenance or cost. But, it is important to consider that individual needs are not the first priority. Your request for extra parking spots or rose bushes might not be granted this year. And you might find yourself going head to head with Mrs. Smith who prefers tulips.
Now let’s look at the benefits of condos and townhouses for owners.
Condos and townhouses are both great alternatives to single-family homes: they are less expensive, in regards to initial investment and monthly payments even considering HOA payment. This is great for first-time buyers, families transitioning into a new state or area, and those who are looking to invest in a home as opposed to renting.
With proper planning by homeowners in the community, all of the fees that you have to pay become investments into the livelihood of the property and the units themselves. And a well-managed and maintained townhouse or condo community can give an owner the leverage they need when selling their unit, reducing the amount of time the property sits on the market.
Community benefits and security
Whether your homes are physically attached or not, living in a townhouse or condo community involves more socializing. Need someone to feed your cat while you are out of town for a couple days? Perhaps Anne from 4E can help.
What are the risks/downsides of condo and townhouse owners?
High HOA fees
We know that condo owners pay higher HOA fees because of the bigger shared space. Townhouses don’t have as many HOA costs but tend to be slightly more expensive than condos and can have greater insurance costs. At the end of the day, a condo might be less expensive than a townhouse, but the money you save might not be much if any when you factor in HOA fees.
While HOA can take a good care of the community, it can also let it go. And as your unit ages, you may be competing with newer and less expensive developments.
You will have to share walls or even floors and ceilings with your neighbors if you don’t like your neighbors your life can turn into a nightmare.
The truth is, condos and townhouses share so many similarities that the smallest differences can become defining factors, even when they initially sound small. First, you need to decide if the lifestyle of either a condo or townhouse is right for you. For example, if anything above threw up a red flag, consider looking into single-family homes in neighborhoods that may overlap with the benefits of a shared community.