Buying a home is an excellent investment and can be an incredible upgrade to your lifestyle. But what type of home do you want to live in? If you are not interested in buying a detached single or multi-family home, you may be confused by the condo vs. townhouse issue.
Which to choose? Each has its advantages and disadvantages. Here we will look at what each is and the relative costs, similarities, and differences between them.
By the time we are done, you’ll have a clear idea of which one is best for you.
What is a Condo?
When you think condo, think apartment, but with one key difference. A landlord owns an apartment, but in a condo, the landlord is you! In most condos, you will share some or all walls, floors, and ceilings with other owners. Most condos are located inside buildings along with other condos. They look like apartments located in an apartment building.
What is a Townhouse?
In a townhouse, you’ll probably share one (or maybe two) walls with neighbors, but there is usually no one above or below you. Townhouses give you a bit more privacy than a condo. In fact, you could think of a townhouse as a row house.
Both come in many styles. You may find them on a large high rise, up a cul-de-sac of cottages, or anything in between. Condos can come in multi-story buildings, while townhomes are seldom more than two stories.
How are Townhouses and Condos Similar?
For one thing, either one will cost you less than a detached home would.
Another important similarity is the way owners band together to manage their property. In each, the owners are part of an association like a condo association or a homeowners association (called an “HOA”). A fancy name for these associations is “Common Interest Communities” or “CICs.” These CICs join together to perform maintenance or repairs on common areas like pools, lobbies, parks, and the like.
The CICs are funded through dues paid by each owner. You’ll probably pay lower dues for a townhouse than a condo. But that’s only because townhouse owners pay for much of the building upkeep themselves.
Differences Between a Condo and a Townhouse
When you own a townhouse, you own the structure and the land under it.
When you own a condo, you are buying the space inside of the unit but not the unit itself. If there are any communal areas (recreation centers or pools, for example), you have fractional ownership of them (along with the other owners in the complex). You also have fractional ownership of the structure housing all the condos and the land underneath the entire complex. In a condo, you do not have sole ownership of anything tangible.
When you own a townhouse, you are buying the unit itself and the ground underneath it. As far as common areas go, you may or not have part ownership (specified in the deed). But whether or not you own them, you are responsible for paying a monthly charge for their maintenance. You must also help pay for their upkeep and any necessary repairs or renovations.
You can think of condo and townhouse ownership this way: Townhouse ownership is vertical: from the top of the structure right down to the ground. Condo ownership is horizontal: what is between the walls.
Townhouses often have a garage, while condos seldom do. And you can usually walk from the street to a townhouse but often must enter a building and look for a door to enter a condo.
How Private are Condos and Townhomes?
Privacy in condos depends on the style. Condos could be individual private homes or units in a big building. Townhomes might share one or two walls with their neighbors but do not have another unit above or below.
Now that we have looked at the key similarities and differences, there are a few other considerations. Let’s talk about governing documents, buying, and getting a mortgage for a townhouse or condo.
Pay Attention to the Rules and Regulations
Whether you buy a condo or a townhome, you are buying into a community controlled by a covenant. This is important, and you need to be aware of this going in. Some of the things covered by this document might be contractor hours, smoking, lawn care, garbage cans, or permissible paint colors. You agree to follow the rules of this document when you close the sale. So, you should read them carefully before you buy. If you fail to follow their rules, you could receive a fine. In extreme cases of non-compliance, you could face a lawsuit and a lien on your property could result.
What about pets? Both condos and townhomes generally have a rule against “dangerous breeds,” including any dog weighing more than 45 pounds. If you like big dogs, then maybe a condo or townhouse is not the best choice for you.
Look into the Recent History
Here’s a tip before you buy. It applies whether you are buying a condo or townhouse. Talk to members of the board. Ask to see the minutes of their meetings. Get a sense of the major issues the community association has faced in the past year or two.
Be especially alert for any big-ticket repairs that are looming. There may be an elevator replacement in a condo building, for example, or a townhouse association may be assessing how owners should pay a legal settlement due to an accident on their property.
Whatever the issues, the time to find out about them is now, before you buy. If this information is not available, then consider that an issue in itself!
And don’t just talk to the board. Talk to current owners. Take a few out to lunch or dinner. Ask them how the board and management have dealt with them and their requests in the past. The relationship here should be cooperative and not adversarial. Make sure it is before you buy!
Speaking of buying, how about the buying process? Buying a condo or townhouse is not very different from buying a house. Though the interest rate on condo purchase mortgages is higher than on townhouses.
Mortgage and Insurance Options
Are you using a government-backed mortgage? This is not usually a problem, but not all condos and townhomes are eligible for these mortgages. Eligibility requires a high rate of owner-occupied units, no pending litigation, and a strong balance sheet. Eligibility is easy to discover. Just ask your realtor if the property is FHA or VA eligible.
What about buying insurance for your home? Rates are usually lower for condos because owners must ensure only the property inside their unit. Because townhouse owners also have to ensure the building and grounds, it adds to their insurance bill. Make sure to choose an insurance company that you trust. Ask around or do a Google search if you are not sure.
Whatever policy you buy, make sure it includes repairs from fires, storms, or natural disasters. It should cover the replacement cost of big-ticket items. Lastly, it should offer liability protection if a guest or a contractor sues you after getting injured on your property.
How about resale value? How do condos and townhomes stack up against detached houses when it’s time to sell?
Fortunately, any well-run HOA keeps resale value at the top of the agenda. Well-landscaped grounds or a stunning pool will boost your asking price. Historically, condo and townhome values have grown at a slightly slower resale rate than traditional homes. Still, that trend is beginning to change. Condo and townhouse values are increasing at the same pace as other homes.
When we started, we said you’d have a clear idea of which type of property is best for you by the time we were done. We hope we kept our word. Happy home hunting!