Townhouse vs Single Family vs Duplex

14 Replies

Hello all,

I am a new investor that hasn't made a deal yet. I am looking for pros/cons on different property types keeping in mind that I am just starting out and would be managing myself.

I like the idea of a townhouse that has maintenance provided (although HOA dues may rise). It would also give me a newer property (less than 12 years old) than if I bought a SF or Duplex (Blue Springs, MO).

When I lived in a townhouse, I know the HOA paid for trash, snow removal, lawn care, had amenities such as a pool and workout room, and even had insurance in case a roof or siding needed repairs.

I also like single families because I can get a bigger return. Most of the ones I can afford are in bad shape, and I am not a handyman (video director). My concern with duplexes is who is responsible for lawn care/snow removal, and most in the area that I can afford are section 8, which I know very little about.

I am lucky to have all these options in my town, but I want to hear what others think a newbie should start with and why. Please keep in mind that I would prefer to buy and hold. Thank you in advance for any and all input.

Your best value - all things being equal in terms of price to rent ratops - sfh's are going to be your best investment.

But all things are never equal. To me, I'm open to either of those 3 home types depending on the numbers. But I'd also discount townhomes and duplexes based on other things which means I'd want to see better price to rent ratios on either of those before I'd buy one of them over a SFH.

1) Townhomes. If you have an HOA, then you have to factor in both the expense (obviously) and the risk. The risk that the HOA fees can go up. The risk that the HOA has the ability to change their bylaws and no longer allow you rent to the units out.

Also, townhomes are much closer to apartments so you'll typically have more turnover and higher management effort needed.

2) Duplexes. Usually a little less likely to have hoa's with duplexes but still possible. Duplex is a little closer to a home with only one shared wall on the unit but still not the same privacy a sfh can give. Again, that tends to lead to more turnover than a SFH. And, again, you have the risk of the how do repairs get done for duplexes?

That being said, there's still a number that makes sense for each of the three.All things being equal. If I could buy a home for 100k and get 400 a month gross profit (i.e. before repairs or vacancy), I'd want to buy a simlar duplex and get about 450 to 475 a month in gross profit and, for a townhome, probably 500 a month in gross profit in order to make it worth the risk.

Now if you're sfh's are kicking off 350 a month in gross profit where you're at, then I'd add $50 for each product class and go from there.

One other factor I'd throw out there though. Sometimes, you may need to dropdown to towhomes or duplexes in order to get into a certain area where you can really make hay.

Example would be a really nice area where the sfh's are priced so high because of the area's great schools that you can only make 100 a month gross profit - which is basically a nonstarter that you can't invest in.

But maybe some townhomes in the same town can be had that will generate 300 a month gross profit. Its good enough and allows you to build equity and the fact that the town has such good schools overrides the risk of higher turnover as no other decent rentals are available.

So, while I say that SFH's are the best investment class between the three, there are always things that make the numbers work regardless and make each of them a good deal.

I have 26 sfh's and one townhome. But the townhome I own has no HOA and is in the same town I live in - where its been next to impossible to buy homes that make sense as investment properties. I love that the unit is so close and that I've had the same renter in there the entire time.

Thanks @Mike H.

Sorry it took so long to reply. I will have to look into a SFH, just hesitant that I might get in over my head. We are in a very good school system, and like I stated before, the SFH are old. I can do cosmetic work, but I don't want to replace roofs or joists.

Originally posted by @Ken Radino :
Thanks @Mike H.
, but I don't want to replace roofs or joists.

That's what contractors are for,,you don't have to be a contractor to do very well in real estate

As a newbie, sometimes it is truly best to partner with someone in your market or someone offering a turnkey opportunity in other markets. There are a ton of turnkey marketers here. You can often earn much higher yields with less risk and work on your part. Look for the turnkeys where the provider either has skin in the game with you or has to perform after the sale to avoid getting stuck! Happy Investing.

@Ken Radino

Hello Ken,

Im a real estate broker that specializes in investment property in the East Jackson County area of Missouri. Blue Springs is one of my market areas.

I have investors that buy duplexes and SFRs in these markets, but have not bought a townhouse yet. I understand the concern over the HOA fees. One thing to take into consideration is the expectation of the neighborhood over the course of your investment cycle. That may be a 5 year hold or a 25 year hold. IMHO, the townhouse communities in Blue Springs and other similar areas will see deterioration at a greater rate than an SFR neighborhood. Taking that into consideration, if you have a crystal ball that will tell you what appreciation will do over the course of that cycle, you may realize that the upside of the SFR may be better.

Now, multi-family as a whole versus SFRs in our market area typically run like this: My heavy cash flow requirement investors who could care less if there is any appreciation over the next 10 years will look into multi-family. Those investors that want value from paying down a mortgage and having a solid investment at the end of the cycle are more inclined to look at SFRs in the good school districts. Given that you are in Blue Springs, you already know the expensive costs of houses in this area.

Depending upon your financing strategy, one option may be more viable than another.

Inventory is your next challenge, as we are at a low inventory cycle currently. Patience may payoff, if you work the system smartly and get your ducks well lined up in advance (financing and cash).

Winter 2013/2014 was a hit, Spring 2014 has been a struggle. We've changed our buying strategy to accommodate for this change.

Suggestions are to find your comfort zone, your UVP (unique value proposition - keyword search for article), find your market target area and get the ducks lined up.

All the best

Thanks Andy & Andy, for some reason I can't mention both of you.

@William Robison hope I can make it to the KC Meetup to see you and others face to face. I think right now I just need to save save save, then I will be able to do more with my money. I would like to partner up on a deal with someone in our area, but I'm not sure who would hold my hand through the process.

Bringing a UVP to the table will usually help you get a mentor/partner.

UVP can be cash, sweat equity, off-market deal find, etc.

Looking forward to seeing you next week at Bigger Pockets Kansas City Meetup #3

SFR are much easier to liquidate. MFR sit on the market a lot longer because your market is usually only investors. Investors are looking for deals and your pool of buyers is much smaller.

If you are not already a homeowner - you might consider using the 203k loan to acquire a home needing repairs - you can also use the loan to purchase a townhouse or a duplex, tri-plex or a quad and use the funds to make repairs. With a low downpayment, it's about the cheapest source of funds you'll find and you can use it as an investment property provided you live in it for a period of time.

You could purchase a home this way and rent out 2 or 3 of the rooms for extra income using our MRR model....the leases and rents would cover the mortgage and you'd be able to purchase another one using the same loan after 24 months. It's a very smart way to gradually build a portfolio....Happy Investing

Thanks @James Mudd I want to buy and hold, but eventually I will need to sell.

@Andy Luick I live in a SF already, otherwise I would definitely look into the 203k loan. I think I will start to turn my focus to a SF, save money for now, and just keep my eyes open for a deal.

@Ken Radino - another potential option would be to rent your current place if you have family to stay with short term....just get yourself qualified for the 203 long as the lease is for 12 months and covers the mortgage, you should be good to go. At least another option to think about!

I like townhouses and condos much better than SFH's.

HOA fees are virtually all maintenance and reserves. Often investors underestimate the maintenance cost because they fail to account for the new roof that will be needed in 10 years and frequently delay things that should happen now. When HOA fees go up it's about the cost of maintaining the building and making sure it can be maintained in the future. You would see the same increases maintaining a house. It's just that a well run HOA puts money away today for the roof that will be needed in 10 years. HOA maintenance smooth the highs and lows and gives some economies of scale to get things done more cheaply than each homeowner doing their own maintenance.

Another reason I like condos and townhouses are the changing attitudes toward real estate. Young professionals today don't aspire to own a John Deere to take care of a couple acres in the 'burbs. Getting something where somebody else takes care of cutting the grass and deciding when a new coat of paint is needed is where young couples today are.

And I realize that puts me in a minority here. But I like condos and townhouses for both ease of management and appreciation.

@Andy Luick

I don't think my sister in law would appreciate my wife and two little kids. I know what you mean though. We have thought about renting our place, but aren't in a position to have two mortgages if we can't find renters.

@Michael B.

Thanks for your thoughts, that's was my reasoning for possibly starting with a townhouse. The problem I found was a lot of them don't let renters in, or the percentage is too small where it is either filled or may become a problem.

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