The decision on what type of home to buy can be tricky since you cannot predict with certainty how long you will live there and what life changes your home will have to accommodate in the future. The conflict between what fits your needs and budget in the present, and what you will need in a few years further complicates the decision between a townhouse and single-family home. A buyer must compare the advantages and disadvantages of both.
One of the many choices real estate investors face when buying a rental property is a choice of a townhouse vs single-family home. There are multiple types of single-family homes for sale. So how does an investor compare and contrast the different types of residential real estate investments available? Mashvisor has all the tools you will need, but this overview will help serve as a guide when evaluating the pros and cons of attached family homes vs. detached family homes.
Buying real estate is exciting enough on its own, but it gets even more exciting when you check out the array of options that are waiting for you to move on in. Two of the most popular options are the townhouse and the single-family home. But how do you know which one to pick? Keep reading to find out.
What Is A Townhouse?
Townhouses are conjoined, detached or semi-detached units owned by individual homeowners. Physically, they are usually narrow buildings spread over two or more floors, often with small private or semi-private yards. Townhouses fall into two types of ownership; freehold townhouses, and condominiums. In a freehold townhouse, homeowners own the land on which the property is located, as well as the yard and walls of the home. With condominium townhouses, like with traditional condominiums, the plot of land and common areas belong to a homeownership association (HOA), to which the homeowner will pay monthly fees for maintenance 0f the common areas, trash pickup, and snow removal. An HOA might also enforce certain restrictions when it comes to community aesthetics such as fencing, curb appeal, and exterior wall paint.
What Is A Detached Home?
A detached home, in comparison, is a stand-alone building that does not share common spaces, land or walls with any other residence. A detached homeowner is fully responsible for the ownership and maintenance of the property.
Townhouse vs Single Family Home – What’s the Difference?
We all know what a single-family home is. It is a detached, stand-alone property that does not share common areas or common walls with any other property. Typically the term means an individual property. Sure, there may be a homeowners association that manages some of the neighbourhood services, but a single-family home is its stand-alone property.
By contrast, a townhouse is not a stand-alone property. The term most commonly refers to a home that shares a wall, or two walls, with another home.
There are serious implications of owning a rental property that is not detached and is instead part of a group of homes. At a minimum, some of the management and upkeep of the investment property will be dependent on others over which you have limited control. A townhouse is not exactly a condo, which is part of a well-defined community, but it could be similar in many ways. Most real estate investors consider the term “townhouse” to be a subset of the term condo with less involvement with a condo association.
Townhouse vs Single Family Home – Pros and Cons
Upsides of Single-Family Properties
When considering any good rental property, savvy real estate investors consider what their portfolio needs at that time. All of the standard real estate metrics still apply. The local neighbourhood matters quite a bit. As an investor, you need to know the housing market and decide (using formal tools Mashvisor can supply you with) which property will have the best return on investment.
That said, single-family detached homes have some clear advantages. For one, you make all of the decisions. Maintenance, repairs, upgrades, and remodels will all revolve around you. You will decide the timeline, scope, budget and all other aspects of this important part of investment property management. You won’t have to work within the confines of a condo association. There is a lot to like about such an arrangement.
When you screen and select tenants, you also have more freedom. You can allow pets. Condo associations can place restrictions on pets, limiting your tenant pool. You also won’t have to worry (much) about your tenants’ problems with neighbours. If they don’t like the folks next door, that is not your worry. You have no control over those other investment properties. This coin has two sides, of course.
Upsides of Townhouses
Most of the upsides of buying a townhouse are financial. By sharing a wall or walls, you will have somewhat lower costs, though unlike a true condo, the advantages may be limited. Townhouses tend to be smaller, and there is generally a larger pool of tenants looking for moderate or small units to rent. If they could afford a very large space, they would be more likely to buy, rather than rent from you. Your townhouse may also be part of a homeowners association that manages part of the grounds as well. Like with condos, there is the possibility of some reduced cost and hassles in that regard.
One upside of a townhouse is that it is likely to have town water and sewer. Avoid any townhomes as investments that share a common septic system or rely on a private well. The exposure to you as a real estate investor is not tolerable. Town water and sewer are much easier to predict the costs of and work well in rental properties.
Downsides of Single-Family Properties
Investing in single-family rentals has its own set of negatives. This story will focus on investing in single-family rentals. One’s primary residence is hard to justify calling an “investment.” The first challenge with single-family homes as an investment rental property is that it stands alone as its mini-business. That adds to your workload in many ways. The lack of shared maintenance compared to owning, say a duplex or triplex unit, is no small matter. Similarly, by comparison to owning multiple apartments or condos in the same complex, you are looking at more work per unit with a single-family home.
Single-family rentals are also different. The tenant pool is different, typically more affluent, and in many ways a bit smaller than the general pool of tenants one will find that are available for condo or apartment rentals.
You are also on your own with regard to property upkeep, and septic systems can negate the possibility of a single-family home being viable as a real estate investment. There is too much financial exposure to consider a home with a septic system as part of your investment holdings.
Downsides of Townhouses
Townhouses have many of the same negatives as single-family homes. Unless you own the abutting units, the townhouse is simply a stand-alone mini-business you will have to manage without bundling your services. Most townhomes have individual yards, usually in the back, which you will have to deal with.
Advantages Of Townhouses:
- Affordability: Compared to a single-family home, townhouses tend to be less expensive and therefore more accessible for first-time buyers and young families.
- Modern features: Townhouses are generally designed for an urban demographic, and therefore offer updated features like hardwood floors, granite countertops, and open-concept layouts.
- Low-maintenance: Townhouses that fall under a homeownership association offer the spaciousness of a single-family home along with the convenience of a condominium when it comes to upkeep. HOA’s assume the responsibility for maintenance of common areas, landscaping, garbage pickup and snow removal.
- Privacy and security: Unlike condominiums, townhouses have private outdoor areas that homeowners can customize to their preferences. Moreover, their proximity to the neighbouring buildings offers more security than a single-family home would. It’s comforting to know that your neighbours will be watching over your home if you go out of town!
- Better amenities: Many townhouses offer shared amenities such as pools, courtyards, and tennis courts. Maintenance for shared amenities will be covered in the homeowner’s association fees.
- Location, location, location! While single-family homes tend to be located further out in the suburbs, townhouses can be found in urban neighbourhoods closer to the Downtown core. This helps when it comes to resale or renting out the property.
Advantages Of Single-family Homes:
- Higher appreciation: Single-family homes generally experience higher price appreciation because the homeowner owns the land. Since land is a resource with a fixed supply, its value will always increase at a faster rate in response to population growth and GDP.
- Resale potential: Homeownership rules will never restrict the owner of a single-family home regarding the use of their facade or outdoor spaces. The ability to enhance the exterior through landscaping can be a strong selling feature for a property.
- Square footage: Detached homes are usually larger than townhouses and therefore, can better accommodate a growing family. Many detached houses also offer larger yards, which can be used to gardening or outdoor entertaining.
- Privacy: Owners of a single-family home can benefit from a higher level of privacy because they own the land on which the property is located and can implement additional security features such as fenced yards.
- Uniqueness: All single-family homes are completely different. They usually reflect the decade in which they were built, offering a historical character that is missing from new condo developments.
Structural Features Differ
Structural features are the main difference between a townhouse and single-family home. A townhouse is attached, sharing at least one common wall with another, similar-designed home. A detached single-family home has no common walls and sits on its parcel of land. Townhouses generally have less front and backyard square footage than detached single-family homes. So-called because of the proximity to a town, townhouses are often clustered in and around urban cores, but often have less interior and exterior space than detached homes. The proximity to neighbours and shared walls is often a disadvantage of townhouses because of increased noise and decreased privacy.
The Townhouse Community
Buying a townhome involves living within a common-interest development in which a standard set of rules governs the community. The homeowners association enforces and oversees daily community operations, including common area maintenance and trash removal. It dictates the colour of the homes’ exterior walls and who can live there. For example, pet size and breed restrictions are common, and senior townhouse communities restrict the minimum age of residents. A homeowner agrees to follow the HOA’s covenants, conditions, and restrictions (CC&Rs) upon buying. He can’t do much to change CC&Rs because the HOA governing board and its homeowners as a whole make decisions. Newer single-family homes may also have an HOA, but it is essential to townhome ownership. The advantage to a townhouse community is that the HOA ensures upkeep and uniformity of the dwellings.
Owning a townhouse is not necessarily less expensive than a detached home. This is because the owner must pay the monthly HOA fee and any additional temporary assessments required for the building; for example, when the roof needs repair or replacement. The owner must also pay real estate taxes as determined by the local tax assessor. The price of a townhouse, however, is generally less than a detached single-family home of the same size and location. Townhouses, therefore, make good starter homes for first-time buyers and those who have a limited budget, when compared to detached dwellings. The median price for a single-family home in San Francisco is $1.61 million, and the cost of a San Francisco condo (which falls somewhere between a townhouse and a single-family home) is $1.17 million.
Choose Which Is Better for You
A buyer must consider whether he can live comfortably within a townhouse community, even if HOA fees and his family size increase. He must check the CC&Rs of the community for restrictions on renting the home to tenants in the event he has to move and cannot sell the home. He must consider whether the advantages of an HOA merit the fees and the restrictions. Note that financing for a townhouse is usually the same as financing a single-family home. Condominiums, on the other hand, are often more difficult to finance.
Townhouse vs House For Activities Lifestyles
Enjoy the patio space of the West Line Village TownhomesFolks who are active and always on the go may find townhouse living suits them better than owning a single-family home. One of the big reasons is the amount of maintenance involved.
Houses come with tons of upkeep that you’ll either have to do yourself or hire someone to complete. Either way, it’s your responsibility. Owning a townhome means that your property comes with a homeowners association (HOA) that typically ensures all the exterior and common area maintenance is done for you. It is possible that you would pay HOA fees, but that means you’re going to spend less time raking leaves or removing snow and more time romping in the park. Or you are biking the nearby trails and or chilling out on the balcony. You get the idea.
With a stronger sense of community, townhouses can also make it easier and safer for you to travel as desired. Neighbours are much more likely to keep an eye out and report any suspicious behaviour going on while you’re gone.
With a stronger sense of community, townhouse owners find it easier and safer to travel as you desire. Neighbours are much more likely to keep an eye out and report any suspicious behaviour going on while you’re gone.
The proximity to a larger city also makes townhouses ideal for those who like to trek into the city in a flash and get home just as quickly. Pick a townhouse community that’s on a major public transportation line, and your jaunt becomes even faster and easier.
TownHouse vs Single Family Home Appreciation
One important part of the long-term profitability of rental property investment is appreciation in value. Appreciation is the added value of a property over time. This is critically important in more than one way. First, it is an absolute necessity since the dollar devalues each year by about 2%. On a $300,000 investment property, that equates to $6,000 per year. And that is a compound number, so each year the devaluation of the currency is larger than the prior year even if the percentage is unchanged. Your investment needs to appreciate faster than inflation to hold its true value.
You also hope that by adding value via real estate market changes, your home will appreciate, but that is not within your control once you are buy-in. You need to do your best forecast and evaluation of the neighbourhood and its likely changes and plan for the future that way.
However, your added equity through improvements is within your control, and you want to invest in a property that will grow in value as you make improvements. Here, single-family homes have an edge. A townhome’s value is going to be forever tethered to the value of the home to which it is physically attached. A single-family is linked more to the general street and neighbourhood.
Townhouse vs Single Family Home Investment – What’s the Verdict?
Whether you are looking for an affordable first home or a newly built home to match the lifestyle you want, you may want to consider a new townhouse as an alternative to a single-family home.
Today’s townhomes range from affordable to luxurious, and their designs are a far cry from the box-like rows of the past.
Architects and builders maximize the limited land of townhouses with balconies and rooftop terraces and open up the interiors with high ceilings, oversized windows and open floor plans.
There is no single answer as to which is the better investment for you when considering a townhouse vs single-family home. Both have the potential to be a good rental property. However, we have revealed some differences that will help point you to which is the best real estate investment for you at this time. Like with all your property investments, use Mashvisor’s many tools to help you with the evaluation.