Townhouse vs Single Family Home Investment

One of the many choices real estate investors face when buying a rental property is a choice of a townhouse vs single family home. There are multiple types of single family homes for sale. So how does an investor compare and contrast the different types of residential real estate investments available? Mashvisor has all the tools you will need, but this overview will help serve as a guide when evaluating the pros and cons of attached family homes vs. detached family homes.

Townhouse vs Single Family Home – What’s the Difference?

We all know what a single family home is. It is a detached, stand-alone property that does not share common areas or common walls with any other property. Typically the term means an individual property. Sure, there may be a homeowners association that manages some of the neighborhood services, but a single family home is its own stand-alone property.
By contrast, a townhouse is not a stand-alone property. The term most commonly refers to a home that shares a wall, or two walls, with another home.

There are serious implications of owning a rental property that is not detached and is instead part of a group of homes. At a minimum, some of the management and upkeep of the investment property will be dependent on others over which you have limited control. A townhouse is not exactly a condo, which is part of a well-defined community, but it could be similar in many ways. Most real estate investors consider the term “townhouse” to be a subset of the term condo with less involvement with a condo association.

Townhouse vs Single Family Home – Pros and Cons

Upsides of Single Family Properties

When considering any good rental property, savvy real estate investors consider what their portfolio needs at that time. All of the standard real estate metrics still apply. The local neighborhood matters quite a bit. As an investor, you need to know the housing market and decide (using formal tools Mashvisor can supply you with) which property will have the best return on investment.

That said, single family detached homes have some clear advantages. For one, you make all of the decisions. Maintenance, repairs, upgrades, and remodels will all revolve around you. You will decide the timeline, scope, budget and all other aspects of this important part of investment property management. You won’t have to work within the confines of a condo association. There is a lot to like about such an arrangement.

When you screen and select tenants, you also have more freedom. You can allow pets. Condo associations can place restrictions on pets, limiting your tenant pool. You also won’t have to worry (much) about your tenants’ problems with neighbors. If they don’t like the folks next door, that is not your worry. You have no control over those other investment properties. This coin has two sides of course.

Upsides of Townhouses

townhouse vs single family home - pros and cons

Most of the upsides of buying a townhouse are financial in nature. By sharing a wall or walls, you will have somewhat lower costs, though unlike a true condo, the advantages may be limited. Townhouses tend to be smaller and there is generally a larger pool of tenants looking for moderate or small units to rent. If they could afford a very large space, they would be more likely to buy, rather than rent from you. Your townhouse may also be part of a homeowners association that manages part of the grounds as well. Like with condos, there is the possibility of some reduced cost and hassles in that regard.

One upside of a townhouse is that it is likely to have town water and sewer. Avoid any townhomes as investments that share a common septic system or rely on a private well. The exposure to you as a real estate investor is not tolerable. Town water and sewer are much easier to predict the costs of and work well in rental properties.

Downsides of Single Family Properties

Investing in single family rentals has its own set of negatives. For this story will focus on investing in single family rentals. One’s primary residence is hard to justify calling an “investment.” The first challenge with single family homes as an investment rental property is that it stands alone as its own mini-business. That adds to your workload in many ways. The lack of shared maintenance compared to owning, say a duplex or triplex unit, is no small matter. Similarly, by comparison to owning multiple apartments or condos in the same complex, you are looking at more work per unit with a single family home.

Single family rentals are also different in nature. The tenant pool is different, typically more affluent, and in many ways a bit smaller than the general pool of tenants one will find that are available for condo or apartment rentals.
You are also on your own with regard to property upkeep and septic systems can negate the possibility of a single family home being viable as a real estate investment. There is simply too much financial exposure to consider a home with a septic system as part of your investment holdings.

Downsides of Townhouses

Townhouses have many of the same negatives as single family homes. Unless you own the abutting units, the townhouse is simply a stand-alone mini-business you will have to manage without bundling your services. Most townhomes have individual yards, usually in the back, which you will have to deal with.

Town House vs Single Family Home Appreciation

One important part of the long-term profitability of a rental property investment is appreciation in value. Appreciation is the added value of a property over time. This is critically important in more than one way. First, it is an absolute necessity since the dollar devalues each year by about 2%. On a $300,000 investment property, that equates to $6,000 per year. And that is a compound number, so each year the devaluation of the currency is larger than the prior year even if the percentage is unchanged. Your investment needs to appreciate faster than inflation simply to hold its true value.

You also hope that by adding value via real estate market changes, your home will appreciate, but that is really not within your control once you buy in. You need to do your best forecast and evaluation of the neighborhood and its likely changes and plan for the future that way.

However, your added equity through improvements is within your control and you want to invest in a property that will grow in value as you make improvements. Here, single family homes have an edge. A townhome’s value is going to be forever tethered to the value of the home to which it is physically attached. A single family is linked more to the general street and neighborhood.