Townhome vs SFH?

Question

Hi BP members,  I never followed market trend in the past and I would like to know : Do townhomes of comparable size, number of bedroom/bathrooms, same vicinity/neighborhood appreciate @ similar rate(%) as SFH?  Looking at SFH and townhomes of similar bedroom/bathroom to invest.  Townhome cost about $250/mo (mortgage, tax, insurance,) less.  Pros and cons of townhomes vs SFH investing.  Any input from investors and realtors appreciated.  Thanks.

Matthew Kwan · Answer

Townhome is newer but you own less in terms of the land sqft + higher chances of having HOA vs SFH where you own more of the land and more opportunities to build ADU/DADU if the state/county allows it.

@Carlos Valencia @Albert Bui

Josh Young · Answer

@Kevin Si there are always exceptions, but typically yes townhomes and condos appreciate less than SFH. There are a number of reasons for this, but a higher HOA fee is one of the biggest reasons.  Since townhomes and condos can be less expensive they sometimes can cashflow a little better than SFH in year one, but over time the SFH appreciation in value and appreciation in rent growth can turn into better cash flow and more equity in the long run.

Something to consider is that if you can't afford the SFH you might be better off buying a townhouse or condo rather than waiting until you can afford the SFH. Getting started is usually the best thing someone can do because prices can sometimes appreciate faster than people can save.

David Krulac · Answer

@Kevin Si  The second property that I bought was a multi-family property which I owned for 37 years and sold for over 5x what I paid.  I still own some multi, but my favorite is detached SFH built since 2000.  The best is detached, then townhouses with no units above or below, then condo/apts with tenants above and below as well as on both sides in last place.

David Krulac

Bigger Pockets Podcast #82

David Krulac · Answer

I've bought and sold over 1,000 properties for my own inventory, and have owned TH, SFH detached, condo and apt.  I've made lots of cashflow for all of them.  HOAs are something to review and research before you but.  Some HOA fees are high, some as high as $300 to $500 a month.  in addition, some prohibit rentals or have rental quotas, most of which are already reached and effectively are prohibitions. And besides high HOA fees, low HOA fees can be an indication of high "one time" fees for improvements.  At one condo I owned they kept the monthly fees low but during my ownership had a "special assessment" for new roofs and later had a "special assessment" for paving the parking lots.  So much for low HOA fee.

Another aspect of rental expenses is utilities, as well as snow removal and lawn mowing.  In detached houses the tenants typically pay all utilities like water, sewer and trash, which often are common utilities in attached townhouses and condos.  And detached housing tenants always cut the grass and shovel the snow, and often take care of minor maintenance.  Another consideration is appliances.  At detached houses tenants often bring their own appliance like frig, washer and dryer, whereas in condos and TH those appliances are often supplied by the owner.   If you supply the appliances, then you have to repair and replace them.  At most of our detached houses we do supply a range, but even there we have had tenants bring their own deluxe models, which is fine with me.  I have a theory that the more heavy things a tenant brings, the longer they stay because of the difficulty of moving heavy things multiple times.  Have a baby grand piano, sure bring it. We have a current tenant who moved in 1984 and still there.  Long term tenants staying many years reduce your vacancy, which is an overlooked expense. In my experience sfh detached tenants stay longer than apt, condo, TH tenants.

Laura Stayton · Answer

@David Krulac Agree with this 100%

Kevin S. · Answer

@David Krulac

Your input was insightful.  Thank you.  You did not mention multi-family in your portfolio.  Is that something you stayed away from?

David Krulac · Answer

Additionally my experience is that SFH detached tenants stay longer, pay more utilities, bring more appliances, and take care of more functions and maintenance. But I've bought both detached and attached properties.

Kevin S. · Answer

The 4% vs 5% is definitely an information I didn't know.  That helps.  Thank you.

Josh Young · Answer

@Kevin Si

Maybe, it's hard to say, it depends on your market, but it might only be 4% for the TH if SFH is 5%.  Square footage and number of interior and exterior levels is also very important for rentals, you have to look at the comps.

Kevin S. · Answer

Thanks for your input.  While it is true with owning land and possible ADU in future, I have no plans to add any ADU and land is not important to me.  I want to know strictly from numbers perspective.  Dollar to dollar ROI.

Townhome vs SFH?

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