Landlording & Rental Properties

Why I Invest in Condos & Townhomes Over Single Family Residences [Spoiler: The Numbers Convince Me!]

7 Articles Written

In the five years I’ve been investing in real estate, I’ve come across a very common misconception: that condominiums and townhomes make poor investments. In general, I’ve never been a fan of blanket statements, and this situation is no different. It entirely depends on your local market, but I’m here to argue that condos and townhomes can in fact make good investments.

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Most investors steer clear because of the presence of a homeowners association (HOA) fee that is typically required to be paid every month. That fact alone makes an otherwise voracious investor run screaming for the hills – but why!?

Every homeowner’s association is different, but for the condo I live in, my monthly $210 fee includes:

  • Landscaping
  • Exterior maintenance & repair
  • Garbage removal
  • Water
  • Basic cable
  • Building insurance
  • Roof
  • Pool maintenance

For full transparency, my properties are in Raleigh, North Carolina, which still enjoys a fairly low cost of living. I am going to illustrate exactly WHY I prefer condos/townhomes over single family homes with a side-by-side comparison of a single family home versus a condo in my market.

Just for simplicity’s sake, I’m going to assume both purchases are cash purchases and that I will manage the property myself.


Related: Thinking About Investing in a Condo? Stop! And Read This First…

Condo A

Condo A is a 3-bedroom, 2-bath unit listed for $100,000 and based on local area rents, will rent for $1,200/month (note: I rent mine out by the room, which can yield significantly more, but I’ll leave that out for now, so $1,200 is a very conservative estimate).  

The condo fee is $200/month, which includes water, sewer, trash, and exterior maintenance, including the roof. Property taxes are $1,000 per year, and insurance is $200 per year. I will also choose to set aside $1,000 per year in a repair reserve and factor in $120 per month in vacancy.

Total, I will net $8,360 per year for a 8.36% ROI.

Single Family Home A

SFH A is also 3 bedrooms, 2 baths but is listed for $150,000 and based on local area rents, will rent for $1,200 per month. There is no condo or HOA fee. Property taxes are $1,500 per year, and insurance is $500 per year. But since this is a single family home, I also pay $100/month for a landscaping service, $30/month for trash removal and set aside $2,000 per year for capital expenditures (the biggest of which is the roof). Don’t forget that I also factor in $120 per month for vacancy.  

With SFH A, I will net $7,400 per year for a return of 4.93%.

Obviously, this is just a made up example with made up numbers, but this is about the norm for my area — single family homes don’t usually meet the 1% rule, while the condos/townhomes I see consistently exceed it. 

The bonus that I get with my condos is that I don’t have to coordinate landscaping or exterior maintenance, and if I do notice anything is wrong (i.e. a tree needs trimming or some siding has been knocked off by a storm), all I have to do is call the HOA manager and let them know.  

Related: BP Podcast 118: Condos, Multifamily, and Dealing with Management with Himanshu Jain

This makes managing my own properties that much easier. And as I mentioned earlier, I rent by the room (and I allow short term leases for an additional $25/month) as a way to juice my returns.

You could find that there is a similar phenomenon in your market, or it could be the complete opposite. But I urge you to run the analysis for yourself before sticking with any preconceived notions. Just because a potential property has an HOA fee doesn’t mean you should immediately run away! Make sure you look into what the fee covers and if the HOA is providing sufficient value to justify that cost.

I would be remiss if I didn’t mention the potential downsides of condos, such as:

  • They make it tougher to get traditional bank financing.
  • Neighbors are in close proximity (more noise).
  • Homeowner’s association financials could be precarious.
  • They typically appreciate at a lower rate than single family homes.

As always, make sure you do your due diligence. Outlined above is just a brief synopsis of why I choose to invest in condos and townhomes over single family homes. It’s working out great for me so far, and if your market is anything like mine, then it may work out for you, too!

[Editor’s Note: We are republishing this article to help out our newer investors.]

Investors: What do YOU think? Do condos make good investments in your area? Why or why not?

Leave your comments below!

Tiffany Alexy is the Broker/Owner of Alexy Realty Group, a boutique real estate firm located in the Raleigh-Durham, NC metro area. She actively inves...
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    Lilian Tran from Houston, Texas
    Replied about 4 years ago
    I am 100% new to this, so trying to take in as much as I can before I get started – hopefully within 5 years. This post and all the comments are so helpful and informative, it is really great! Thanks Tiffany and everyone! 🙂
    Replied about 4 years ago
    Tiffany, great article! I use to live in Raleigh but now Wilmington. Do you do any investing here? I was going to stay away from condos but ou made some great points and they are everywhere here because of the tourist and student populations. Any advise to getting started investing I’m ll ears. Thanks, Brenden
    Rachel Luoto Rental Property Investor from Bremerton, WA
    Replied over 3 years ago
    On the money again Tiffany! I just bought my first deal, a condo. I’m flipping it, but there is room to rent it and still make a little profit if the market goes crazy. I concur that blanket statements rarely reveal the whole truth of the issue.
    Account Closed from Houston, Texas
    Replied over 3 years ago
    As a totally new investor this article and it’s responses has opened my mind to looking into condo’s and what to look for. If I can get a good ROI and watch the HOA fees then it could be good part of portfolio, especially subleasing each room. Something to look at for sure.
    Maheen Akhter from Kansas City, Missouri
    Replied over 3 years ago
    I apologize if this has been asked earlier in the thread, but as far as condos go – most condo HOA’s contain restrictive covenants against leasing, or only being able to lease the unit for 1 year or 2 years and then having to be placed on a waitlist. Have you dealt with this issue? Any creative ways around it?
    Replied over 3 years ago
    Hey Tiffany, Im starting to get into real estate and I am wondering how you do with renting out rooms instead of the whole unit. you mentioned that this was what you were doing with your condo? Does this mean you provide a furnished house or how does this work?
    Garcia Santos Real Estate Broker from 1505 Elizabeth Blvd Fort Worth, TX
    Replied about 2 years ago
    great post, really informative. this post is good for people who want to start their RE career, forthomebuyers is an investor site and they buy houses and this article can really be useful to them, Thanks for sharing!!
    David Yoon Rental Property Investor from Portland, OR
    Replied about 1 year ago
    Great article. Quick follow up question. I currently own a townhome in Portland, Oregon. Bought a 3/2.5 townhome for 275k, cashflows about 300/month. What would you do if your townhome/condo got a special assessment fee of 18k? My goal was to keep this townhome for 10+ years as a rental but financially is it still worth keeping even with the special assessment fee?