Whether you’re looking to invest and earn a profit, or you are shopping for your new home, choosing between a townhouse vs. a condo doesn’t have to be a hard decision. Both property types are great options, and if you’re stuck, we’re here to help you make the right decision based on your situation.
Below you’ll find everything from upfront costs to resell values, HOA fees, property taxes and what you’ll need to make a decision whether to go with a townhouse vs. a condo.
For example, condos generally are cheaper to own, although they generally have higher interest rates so if you’re taking a mortgage and living there, a townhouse is probably the better option. Townhouses are normally more affordable to live in, but a townhouse does not always have the same resale value as a condo. This is why future planning is key because if you don’t plan on staying in the townhouse for more than 5 or 10 years, a condo could be the better choice.
So let’s jump in and help you decide from both a homeowner and investor point of view.
The Differences of Townhouses Vs. Condos
The differences with townhouses and condos is in your future planning. Future planning for townhouses vs. condos includes the following situations.
- You plan on living in the property until you retire
- Sell the property once you’re ready for the next stage in your life
- Living in the property until you’re ready to rent it out
- Purchase the property and rent it from day one
- Do a fix-and-flip to sell for a quicker profit (usually you’d take a hard money loan or borrow cash for this vs. a traditional mortgage)
Taxes and fees change pretty drastically between townhouses and condos. These differences are what will help you make the decision on choosing between townhouses vs. condos based on one of the five situations above.
|More Affordable Mortgage||X|
|Lower Loan Interest Rates||X|
|Lower Insurance Rates||X|
|Lower HOA Fees||X|
|Lower Property Taxes||X|
|Access to More Amenities||X|
|Ability to Make Changes||X|
|Higher Resale Value||X|
Now that you know the differences between condos vs. townhomes, let’s dive into more detail.
Upfront Costs with a Townhouse vs. a Condo
The upfront cost is a big deciding factor for choosing between townhomes and condos. As a homeowner, taking a loan to buy a condo will come with higher interest rates because lenders generally view condos as riskier investments. This is because the HOA has a lot of influence over how the property is managed and what restrictions are in place. On the flip side, investing in a condo will differ from condo to condo.
For example, some condos may have rules about renting out a condo to other occupants. Additionally, lenders may consider the financial health of the entire condominium before deciding whether or not they are willing to provide you with a loan. If you’re set on a condo and cannot get a traditional loan, you can always try borrowing money from friends and family and paying them back. Of if you plan on creating a fourplex or renting a basement apartment, or a spare bedroom, there is a chance you can get a hard money loan or business loan to fund the purchase.
The upfront costs when purchasing or investing in a townhouse are pretty similar to purchasing a single-family home. This makes getting a loan on a townhouse vs. a condo more easy as townhouses likely will not come with any extra fees, higher interest rates, or extra considerations.
Now that we’ve evaluated the upfront costs of purchasing/investing in a condo vs. townhouse, lets go into the next expense, the ongoing fees like taxes, HOA and insurance.
Both condos and townhouses are subject to ongoing costs like property taxes, HOA fees and insurance.
However, HOA fees for condos will be generally higher because these fees encompass maintenance of the exterior of the building, community meeting spaces, and any amenities offered in the condominium.
On the other hand, while HOA fees will be lower for townhouses, townhouses will have higher insurance fees and mortgages taxes. Insurance rates will be higher because they will have to cover the exterior of the building, while condo insurance only needs to cover the interior.
Additionally, the physical space of a townhouse is generally larger than a condo because you are also purchasing the land underneath and attached to a townhouse which can increase your property taxes. Tax appraisers may calculate the assessed value of a property based on the lot size vs. the livable space.
In many instances, increasing the amount of living space (i.e. having more bedrooms or a finished basement) will count towards a home’s appraised value. Because of this, townhouses tend to have higher property taxes than a condo. This can be good for a real estate investor since they will be selling, but bad as a homeowner because your annual expenses will be higher..
Bonus Tip: Location influences property taxes more than any other factor. All things being equal, if a townhouse and condo are located in the same city, a townhouse will generally have higher ongoing property taxes.
Accessing property tax records, insurance statements, and HOA fees will show you which property has higher ongoing fees. In general, a townhouse has higher ongoing fees because townhouses require more maintenance and have more space to insure and tax than a condo.
One important point to consider when choosing between a condo vs. a townhouse is autonomy. It’s much easier to purchase a townhouse and convert into a condo or duplex then it is to convert a condo into a townhouse, although not impossible. If you will want more space because you’re having a family, or your floor plan goals need the room, you will need to wait until the units next-door, above or below open depending on what your plans are.
Additionally, condominiums are subject to more HOA rules and local regulations, which often prohibit the ability to make significant changes to the property. Do your due diligence to discover what an HOA prohibits and whether your future property plans will be doable in a condominium. On the flip side, having more autonomy will come with more responsibilities for the homeowner.
Townhouses will require more ongoing maintenance to the exterior of their home. Additionally, the HOA may even require ongoing maintenance on your dime to keep the exterior of your home up to code and looking good.
The Resale Value: Condo vs. Townhouse
The resale value of a condo vs. a townhouse value will be impacted by external factors, such as local and national market trends.
Generally, condominiums have a higher resale value than townhouses because condos retain their value over time when they are well-maintained by their HOA and stay in good condition. Townhouses may fall into disrepair, and any changes or repairs could improve or decrease a townhouse’s resale value.
Additionally, condominiums are typically built closer to city-centers which rise in value much faster and are continuously in demand if the city has a booming job market and growing population. On the flip side, the resale value of townhouses will vary by location and their condition, so it comes down to a case-by-case basis to evaluate whether a townhouse provides strong long-term value and available work and social activities within a reasonable commute of the property.
Condo vs. Townhouse: Which Is Better?
A condo is a better investment than a townhouse long-term if located in a desirable location. However, it may be cheaper and easier for investors, in particular, to purchase a townhouse upfront and rent it out or flip it for profit. Ultimately, choosing a condo vs. a townhouse for investment or occupancy depends on your particular situation.
If you’re looking for a home with little maintenance, then a condo is great for you. If you’re looking for a home with a little more autonomy, a townhouse is perfect for you.
Both properties have their share of ongoing fees, such as higher condo HOAs and higher townhouse taxes, which balance out their long-term costs. And both properties are about the same when it comes to closing services, escrow and title searches so there isn’t much difference there.
With that said, the long-term value of both properties comes down to the location, the condition of the townhouse, and the number of restrictions that a condo’s HOA enforces.