Many potential property buyers, especially first time real estate investors, are usually confused about what types of investment properties to purchase. Buying a rental property gets especially confusing when choosing between almost similar properties such as a condo vs townhouse. Each real estate investment strategy has its own pros and cons which need to be considered.
What Is a Condo?
A condo, short for condominium, is a private residential real estate unit within a building or group of buildings.
What Is a Townhouse?
Also known as townhomes, townhouses are individual houses that share one or two walls with adjacent homes.
So, how do you choose between a condo vs townhouse? Which would make for the best real estate investment? Here are some comparisons you need to make if you’re torn between buying a condo and buying a townhouse:
Condo vs Townhouse
- Architecture – Condos come in a wide range of styles. They could be part of a group of cottages, a large high rise or anything in between. Townhomes are usually built in rows, with the units sharing at least one wall. Quite often, townhouses have two or three stories. Your preferred style will determine your choice between a condo vs townhouse.
- Ownership – Condos are usually apartments within a complex. As a result, owners only own the interior space of their investment properties. Other areas such as the lawn, halls, gyms, pools, parking lots, and the building’s roof are the property of the Homeowners Association (HOA). On the other hand, owners of townhouses own their property’s exterior and interior, including the driveway, lawn, and roof. If the townhouse investment property is part of a large neighborhood, there could be some communal areas such as parks, pools or playgrounds for your future tenants to enjoy.
Related: Homeowners Associations: Should Real Estate Investors Join or Pass?
- Community – Condos for sale are designed to have a community focus with amenities such as golf courses, pools, clubhouses, and playgrounds. Though some townhouses for sale offer such communal amenities, they are usually more private compared to condominiums.
- Homeowners Association fees – HOA fees are a very important consideration in the condo vs townhouse debate. Due to the costs of exterior upkeep such as pest control, trash removal, and lawn care, condo fees are usually higher. Landlords pay less in townhouse fees since they are responsible for most of their upkeep and maintenance.
- Home insurance rates – Since rental property owners are only required to insure the inside of their unit, home condo insurance rates are often lower for condos. The rates are higher for townhome landlords since the insurance covers both the interior and exterior of their investment properties. But exactly how much is condo insurance in the US market? – An average of $455 per year.
- Privacy – Depending on the design, condos could be apartment-style units or individual homes within a complex. Besides sharing walls with neighboring homes, townhouses are stand-alone houses with no units below or above them. When choosing between a condo vs townhouse, consider the level of privacy you would want.
If those comparisons still haven’t helped you to make up your mind, here are the pros and cons of each type of rental property.
Pros of Investing in Condos
- Security – Most condos provide locked or gated entries and gatekeepers for residents, thus minimizing the chances of home break-ins. This assurance of security will enhance your chances of finding tenants.
- Amenities – With facilities such as gyms, clubhouses, and pools, condo residents enjoy amenities that are not easily accessible to tenants elsewhere. This can be a great perk for tenants that love to socialize.
- Affordability – Depending on the city and neighborhood, condos usually cost less compared to single family homes. This would, therefore, be an ideal rental property investment for real estate investors with a limited budget.
- Proximity to city life – Most condos are situated near major towns or cities, making them appealing for several reasons. Residents can take public transportation, commute by bike or walk to their places of work, and avoid wasting time in traffic. In addition, they can easily access entertainment venues and events. All of these are features of the best places to invest in real estate.
Cons of Investing in Condos
- Potentially mismanaged funds – Paying high HOA fees does not guarantee that maintenance issues will be handled promptly. If the HOA is not managed properly, money that is meant for snow shoveling, pool maintenance, lawn mowing or fence repairs could end up being mismanaged.
- Lack of privacy – With neighbors above, below, and beside them, tenants will not have much privacy living in a condo.
- Difficulty selling – Due to the high HOA fees involved, people might be hesitant to buy your condo. In addition, people with families are looking for a home with a yard where their children and pets can play so you may be alienating this buyer pool.
- Rules – Every resident is required to abide by the condo property management’s rules on issues such as pets and visitors. Living according to these rules can be very overwhelming for some tenants and for you as a real estate investor as well.
Related: 10 Questions to Ask When Buying a Condo to Rent Out
Pros of Investing in Townhouses
- Sufficient living space – Most townhouses have 2-4 bedrooms with a yard and a lawn, thus making them ideal for families with children. Tenants will not have to rent additional space to store their stuff and may see the rental property as a long-term living arrangement which means consistent cash flow for you.
- Privacy – Residents of townhomes for rent live separately in their own properties, thus enjoying more privacy compared to condos.
- Convenient location – Just like condos, most townhouses are located close to or within cities and towns. This provides easy access to amenities such as schools and hospitals.
Cons of Investing in Townhouses
- Small yards – Though townhouses are relatively spacious, most of their yards are very small. In many cases, the yards are only enough to park one car.
- Low rate of real estate appreciation – Though there might be some exceptions, townhomes usually don’t appreciate as fast as single family homes and multi family homes.
- Noisy neighbors – Sharing walls with noisy neighbors can be a real nuisance for residents of townhouses.
Related: How to Calculate Real Estate Appreciation
Conclusion
So, which is better? The decision of whether to purchase a condo vs townhouse often boils down to the lifestyle of your potential tenants, as well as your desired return on investment. Young, first time real estate investors with no time for property maintenance or little property ownership experience may want to start with buying a condo rental, and then later upgrade to a townhouse. If you’re a more experienced real estate investor looking to expand your investment portfolio, you may benefit from owning either townhomes or condos.
Ready to start your property search for a condo or a townhouse? You can easily find long-term rentals and short-term rentals by conducting an investment property analysis using Mashvisor. Start your search now.