There are many different types of rental properties from which real estate investors can choose. Deciding which is the best rental property for you is one key to making money in real estate. One classic rental property choice is common for rental property investors. That is a townhouse vs. duplex. Let’s compare and contrast the two to see which is right for your next acquisition. Before we begin, let us define exactly what is a townhouse vs. duplex.
Townhouse vs. Duplex – Definitions
What Is a Duplex?
Simply put, a duplex is a multi-family property with two units. Typically, a duplex is laid out in a side-by-side arrangement. Other options include an older large home converted into two units. Some are the “up and down” type of two-family homes. The term is generally applied to a property that was originally intended to be a single property with two units. Often times, the two units are identical, but not always. For simplicity, let’s assume for this story that a duplex is a stand-alone property, not part of a condominium community.
What Is a Townhouse?
A townhouse is a specific type of condominium. Most share just walls or one wall if it is an end unit, with the neighboring townhouse. The term is most often applied to a property that is a multi-story unit in a row of similar units. Unlike a typical condominium arrangement, a townhouse owner is usually responsible for the individual exterior parts of the investment property. For example the roof, small courtyard behind the property, and any unshared exterior walls. Arrangements can vary widely.
Townhouse vs. Duplex – Do Your Homework
Duplex Investing Preparations
When you are considering duplex properties the first, and most critical consideration is how much you are buying. Are you buying half of the investment property or all of it, meaning both units? If you are buying just half, you are in for a lot of homework. First off, is there already a two-unit condo contract established and what are the rules? Do they preclude rental properties and specify owner-occupied only? If so, you need to move on obviously.
If the property is available to be purchased and subsequently used as a rental, does it make sense to you? You will be in a business arrangement with another party that has a 50-50 share and a veto over your improvements, maintenance, and other decisions on the rental property. If the side you don’t own is also a rental, can you effectively control the tenant who isn’t yours? A duplex can be a good investment if you own both sides.
Your author presently owns both duplex and townhouse rental properties. Having experienced both, we caution real estate investors to be wary of buying just half of a duplex. The risks and uncontrollable factors are simply too hard to manage. Consider buying duplex units in which you own both halves to be high on your list of considerations. Put buying duplex properties in which you own just half low on your list of options.
Townhouse Investing Preparations
Investing in a townhouse in a condo community is similar in most ways to buying into any other condo community. First, start by ensuring that the community allows units to be rented. Some have owner-occupied-only clauses. Next, find out how difficult it would be for the association to change that rule and thus end your rental townhouse business. The rules are always available to buyers and we suggest going further. Speak in person to the trustees. Knock on some doors. Ask how many units in the association are presently owner-occupied vs. rental units. Ask the trustees if they feel rental units are a problem or a benefit to the community. Avoid purchasing any townhouse in a community that feels rental units are problematic, or that restricts how you will rent the property after you take ownership. Look for special rules regulating the timing and duration of leases. Why lock yourself into a real estate investment without flexibility? Be particularly wary of these investments if you plan an Airbnb type of rental model. It is unlikely to be workable.
Townhouse vs. Duplex – Which Is the Best Real Estate Investment?
Once you have decided on a property by comparing a townhouse vs duplex, you still need to determine if it is a wise investment. Here, many of the same steps will apply as they would in any rental property investment. You will need to determine rental income opportunities. Mashvisor has the tools you need to determine what your likely rental income will be, whichever rental property you decide to go with.
Rental demand is always a consideration, and here you may be at an advantage. In general, longer-term rental candidates prefer a “home” rather than an “apartment.” Both duplex homes and townhouses, or townhomes, as they are often referred to by realtors, offer this. Each is really part of a home, not an apartment building. You may find the type of renter looking at a duplex or townhome is different from those seeking an apartment.
Townhouse vs. Duplex: Investment Property Financing
When weighing a townhouse vs. a duplex one consideration is financing. Assuming you will need a mortgage to acquire the investment property, banks are going to ask you for a percentage of equity in your rental property. Let’s say that percentage is 30%. You will need about double the down payment on both sides of a duplex as you will for a single townhouse. However, the duplex may well be worth the larger tie-up of capital. Duplex units are harder to find with both sides for sale. Watch your wallet, but if you plan to have multiple investment properties, a duplex in which you are the sole owner of both sides is very tempting.
Townhouse vs. Duplex: Costs & Budgeting
One reason that townhomes are very popular is that they are similar to other condominiums in that townhomes are more cost effective since they have shared walls and may also have shared common areas. These have inherent advantages vs. single family homes. However, unlike owning an apartment or condo unit in a building, townhomes also have individual maintenance requirements. For example, you may be responsible for your own roof. Here, the ease of having the “condo association” take care of all the maintenance of the exterior is lost. Townhomes are a compromise when it comes to costs.
In most duplex investment properties, you are the sole owner. That means that you will not have a condo association to help you with maintenance. However, you will benefit from having two units and one rental property to maintain. Your building and landscaping costs will be lower per unit compared to two single-family rental units. You will also have one vendor list for two units. You should expect to find that property taxes will be lower per unit than they would be compared to two single family homes of equal square footage. There are many advantages to duplex units when it comes to costs.
Townhouse vs. Duplex: Flexibility and Control
When you compare the flexibility and control of a townhouse vs. duplex, the duplex will always emerge ahead. Maintenance, repairs, and your rental schedule will all be in your sole control with a duplex assuming you own both halves. With a condo association in control of many aspects of your townhouse, you will need to bow to others’ needs and wants. With a duplex, you control the vendor list and you control the rental demand in ways you do not with a townhouse rental property. For example, the townhouse may have a no pets rule. That slashes your available tenant list and possibly also your rental income.
When evaluating the best type of investment property– a townhouse vs. a duplex- begin by first doing your homework. Mashvisor can help you with determining which is the best multi-family property. Ensure that rentals are allowed. Consider both sides of a duplex a big plus and the availability of just half a big negative. Dig deeply into the rules and regulations of any townhome you consider.
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