If you’re new to real estate investing, you may be wondering whether it’s better to invest in single-family homes or townhouses. Both offer advantages and disadvantages, and the right choice for you will depend on several factors.
The Pros and Cons of Single-Family Homes
Single-family homes are detached properties, which means that owners do not share walls with anyone. They typically have their own front and backyards, although sizes vary greatly.
There are many advantages to single-family homes. They offer more privacy, and they tend to be a popular choice for tenants, particularly families. Single-family homes also tend to generate more value over the long-term. As the owner of the home and the land it sits on, you also have more income-producing options (timber, farming, etc.), and rent prices are normally higher for detached homes.
But single-family homes also have disadvantages. They are more expensive to purchase, which may put them out of reach for some new investors in high-priced markets. As a landlord, you would also be responsible for interior and exterior maintenance.
Property taxes are generally higher, and you’ll need to coordinate services, like trash removal and landscaping.
The Pros and Cons of Townhomes
Townhomes are conjoined units with an architectural style that’s similar to row houses. Owners may share one or more walls with other owners, but they never have anyone living above them.
There are two main advantages to townhomes: lower purchase price and low maintenance. Owners are responsible for the upkeep of the home’s interior, but the homeowner association (HOA) takes care of maintaining the exterior of the home, the grounds and any amenities the community may offer, like pools, parks and landscaping.
Some HOA fees also cover water, garbage collection and even basic cable.
Generally, townhomes are cheaper than single-family homes and come with lower property taxes. Their affordability makes them a more practical option for first-time investors with smaller budgets.
Townhome communities may also offer attractive amenities, like pools, gyms, business centers and other helpful services. If the goal is to rent the property, these amenities can be major selling points for potential tenants. And landlords never have to worry about roof maintenance/repair or landscaping. These are taken care of by the HOA.
But just like single-family homes, townhouses also have disadvantages. For starters, you’ll have to pay a monthly HOA fee. Depending on where the townhome is located, the fee may be hundreds of dollars per month.
Townhomes generally don’t appreciate in value at the same rate as a single-family home. Financing can also be a challenge, as lenders are stricter with townhome purchases. Townhomes offer little privacy, and they tend to be smaller in size.
Market, Budget and Commitment
Townhomes and single-family homes can both make great investments. Ultimately, it comes down to the local market, your budget and your level of commitment.
If you’re in a market where everyone owns a townhome, then a townhome may be the better investment choice. Townhomes may also be the better option if you want a lower level of commitment when it comes to maintenance and neighbor disputes.
Single-family homes can be a practical investment in virtually every market, but if you’re on a tighter budget, the higher purchase price may put them out of your reach.
Weigh your options and consider your local market before making your purchase.