If you're looking for the happy medium between owning a single-family home, with all the expensive repairs and security issues that may entail, and owning a condominium, where you have to abide by the board's rules in exchange for not worrying about grounds upkeep, owning a townhouse may be your answer. So, just what is a townhouse?
To understand the difference between townhouses and condos and single-family homes, we can look back to the days when "a man's home was his castle" (or maybe his farmstead). Whether grand or humble, single-family homes sat on large plots of land and the owners had full rights of ownership over the structures and the land itself. But for people who lived in the town proper, the rules and rights of ownership were modified to account for housing density: Property owners had the same ownership rights, but only on the little postage stamp of land where their house was built and not on any surrounding area.
Today's townhouses are still distinguished by their small ownership footprint, and now they can be visually distinguished by their tall, skinny, adjoining architecture. Basically, they are row houses with a modern aesthetic.
Townhouses versus condominiums
Townhouses often look very much like condo developments, albeit with fewer units and never several units in a single vertical building as condos can be. The row-style architecture of some condos is nearly identical to townhouses. However, townhouses are often classified fee-simple like single-family homes -- and that makes a huge difference in how lenders evaluate them. It's easier to buy a fee-simple townhouse than a condo, as they are assessed as a better risk than condos and don't have to pass the same Fannie Mae review process to be eligible for a government-backed loan.
Once you're living in the unit, there aren't too many discernible differences. Both development types tend to be governed by homeowners associations (HOAs). The amenities for a condo development may be more extensive -- and dues more expensive. The units themselves might be more individualized in a townhouse development because the HOA and the title itself allow for that.
Key differences between townhouses and condos
|• Owner owns the structure and the lot beneath it.
• May share walls with neighboring units but will not have a unit above or below.
• Unit owners may also own yard space and driveway -- depends on the development.HOAs oversee less and have lower fees.
• Does not go through Fannie Mae condo review if it has a fee-simple title.
|• Owner only owns the structure and air space.
• May share walls with neighboring units and have units above and/or below.
• The HOA owns all exterior areas including patios and driveway -- unit owners own a share.
• HOAs tend to be more involved in upkeep and more restrictive of owners rights.
• Must pass Fannie Mae condo review for conventional financing.
How HOAs work in townhouse developments
Sometimes the HOA in a townhouse development will be just as involved and provide as many common amenities as in a condominium complex. But it's more common that townhouse HOAs do less and charge lower fees. Condominium HOAs will handle exterior maintenance (e.g., roof repair) of units via their own staff or building management and will charge commensurately higher fees. Townhouse HOAs often keep amenities and services minimal (e.g., trash pickup and common space maintenance only), and therefore HOA fees tend to be lower.
Exactly what an HOA will cover varies according to the development, so you should ask what's covered. Specific questions include:
- Who handles trash removal?
- Who handles yard maintenance?
- Who is responsible for roof repairs?
- Is pool area upkeep included?
- Is there any security?
- Who is responsible for upkeep/cleaning of the building exterior?
- Is water covered under HOA dues?
If there is an HOA and the monthly dues seem low ($150 to $300), they may only cover a few of these things. Higher monthly dues should mean more is covered or that the amenities are more extensive.
How underwriters look at townhouses
Loan underwriters tend to see condos as high risk because the lender classification system for primary residences is based on two things:
- How many walls a unit shares with others.
- What's on the title as far as ownership rights.
Essentially this system assumes that the closer properties are together and the less ownership a person has, the more likely it is that bad things happening to one or a few units could drag down the value of the entire development.
Townhomes may share one or two walls, but they are not stacked on top of each other the way many condos are. They also tend to be individually upkept, as opposed to condominiums, which are "community" managed.
Because of this, underwriters tend to classify townhouses as just below single-family homes and a better risk than condos.
Telling a townhouse from a condo
Redfin and the like have a particularly maddening way of listing some townhouses as CONDO/CO-OP/VILLA/TOWNHOUSE, which is absolutely unhelpful if you're trying to determine whether a property is classified as a leasehold/condo or fee-simple property on the title for mortgage purposes. Listing agents' descriptions do nothing to further clarify, as they tend to use "townhouse" and "condo" interchangeably.
Be aware, though, that real estate professionals can tell what type of dwelling it is by looking at the title report and/or legal description, which will specify whether the lot is for sale along with the unit. If you are using a real estate agent, have them do the legwork of going through the listings and determining which are townhouses (sit on their own lots and are not condo-classified) before you start going to look at places in person.
Upsides of townhouse living
- Typically they're less expensive than single-family homes.
- The connected aspect creates a layer of security -- they are often gated.
- Smaller outdoor space means less to landscape and maintain.
- Often lower HOA fees than condos.
- More freedom to customize exterior and yard space than with condos.
- They can be less restrictive about owners' rights than condos.
Downsides of townhouse living
- They're typically two floors, sometimes three, so the layout is not great for people with mobility issues.
- Because there's usually at least one shared wall, noise (yours or the neighbors') can be an issue.
- You only own the ground directly under the unit -- if you have a yard, it's probably not "yours." (There are exceptions to this.)
- Typically simpler common areas with fewer amenities.
- While townhouses may allow a bit more in the way of custom-decorating the exterior of units, owners can't redecorate completely as they like.
- Although most townhouse developments have HOAs, the HOAs take responsibility for much less. (For example, the HOA may still impose an exterior paint color but may simply tell all the owners to paint their unit exteriors the HOA-approved color, and then the owners each individually have to pay for it.)
Property taxes on townhouses
Because of the smaller footprint, property taxes on townhouses are typically lower than for single-family homes and more in line with condos. However, property taxes are calculated according to the assessed value of a property -- the unit and the land. So, it is possible that a newer, more luxurious townhouse with a fee-simple title may not have substantially lower property taxes than an old fixer-upper home on a small lot nearby.
Who does townhouse living make sense for?
- People who need less square footage -- particularly less outdoor space than a single-family home typically offers.
- First-time homebuyers and people just starting their families.
- People who like being in a heavily developed neighborhood with restaurants and shops nearby.
- People who are more comfortable being surrounded by neighbors.
- People who like to have some amenities, such as a pool, but don't want to be responsible for installation or upkeep.
- People who want fee-simple ownership with condominium-like conveniences.
Is a townhouse right for you?
If you're fine with a smaller footprint and having neighbors nearby, a townhouse -- particularly a newer, well-maintained one, might be the perfect way to own a home without being completely on your own when it comes to maintenance, upkeep, security, and services.
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