Real Estate

Are Townhomes and Condos Good Investments?

Townhomes and Condos Good Investments

Wondering if townhomes and condos make good real estate investments?

While there’s no simple answer to that question, one thing is clear: in most markets, condominiums, apartments, and townhomes are priced lower than single-family homes. Price-sensitive first-time buyers often view condos and townhomes as a way to get into the real estate market. While investors are attracted to the relatively low maintenance compared to other types of rental properties.

Although the up-front purchase price for a condo or townhome may be appealing, it’s important to know that recurring expenses such as HOA fees can drive up the cost of ownership.

How Are Townhomes and Condos Different From Detached Homes?

When you purchase a traditional single-family home, you’re responsible for all of the costs. This includes property taxes, insurance, and upkeep, in addition to your mortgage. Aside from paying mandatory bills, costs related to maintenance and home improvements are largely at the discretion of the homeowner. When you own a house you can decide when you’d like to paint the siding, renovate the bathroom or re-pave your driveway.

By comparison, condos and townhome owners are required to pay monthly fees called homeowners’ association, or HOA, fees. These fees cover maintenance and insurance for all the common elements of the complex. HOA fees include the roof and siding, parking structures, elevators, hallways, and landscaping. If the complex has a pool, fitness room or community room, these are covered under the HOA fees as well.

HOA fees are based on the size of the unit. The bigger your townhome or condo is the higher your HOA fees.

Why Townhomes and Condos Can Be Good Investments

Of course, there are some perks that come with paying those HOA fees. Many real estate investors like the fact that townhomes and condos require very little maintenance. It makes their job as a landlord easy in terms of repairs and upkeep.

Condos and townhomes are also attractive to renters who are seeking a low-maintenance home. Which makes these units easy to rent out in hot housing markets. This type of housing also appeals to mature renters who have cashed out their family homes and now want to enjoy freedom from all the work that comes with homeownership.

According to the U.S. Census Bureau, the monthly median asking rent nationwide has continued to rise, hitting $1,008 in Q2 of 2019, while homeownership rates have fallen to 64.1% in 2019, down from 69% in 2004. The trend towards rising rents and reduced homeownership can make investing in a well-located townhome or condo a good choice.

The Downside of Condo and Townhome Investing

Although it’s certainly possible to achieve a good return on investment by buying and renting out a condo or townhouse, there are some downsides to consider.

Keep in mind that HOA fees tend to rise over time, and many HOAs levy special fees for big projects such as roof replacement for the complex. These extra fees can quickly turn a good investment into a money pit.

There’s also a number of rules and restrictions that come with living in a condo or townhouse that can be difficult to live with. HOA’s regulate everything from where you park your car to the exterior color of your window treatments. Before you purchase an HOA-controlled property, be sure to check the rules around rentals, otherwise, you might end up with an investment that you can’t make your payments on.

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