What you need to know when buying a townhouse
Housing in urban and suburban areas is always in high demand, and single family homes in these areas are often outside of the price range for many buyers.
While looking for a more affordable homebuying option, you might consider moving to a townhouse community.
Townhouses are typically multi-floor residences that share at least one wall with an adjoining property. These homes are usually part of a larger development or complex and are subject to rules set by their local homeowners association.
With less square footage than a typical single-family home, townhouses offer an affordable real estate investment for buyers looking to move to an urban or suburban area while avoiding inflated home prices.
Is it a good idea to buy a townhouse?
Buying a townhouse can be an excellent investment and provides a number of benefits that aren’t found in typical single family homes:
- Energy Efficiency
- Good Investment
- Homeowners Association Governance
Suburban and urban neighborhoods with good schools, a thriving economy and an exciting nightlife are valued targets for anyone looking to purchase real estate. The high demand for housing in some of these communities has spiked the cost of single-family homes, blocking out interested homebuyers who are looking to move to the area.
Townhouses offer an alternative by providing a more affordable homebuying option. While these residences don't always come with big front lawns or a unique design and layout, townhouses do provide the comfort, privacy and ownership status of a typical single family house.
Another major benefit to owning a townhouse is that buyers will save on the price of utilities. A smaller footprint might not always seem like a benefit in real estate, but less space to keep warm or cool can mean big savings in the winter and summer months. Townhouses also often share at least one wall, keeping the space insulated and easily temperature controlled.
As more urban developments prioritize green design, the built-in energy efficiency of townhouses has made them a favorable option for community planning. Many of these new townhouses are developed to maximize these qualities, helping owners save on utility bills while benefiting the local environment. If you’re looking to make your home more energy efficient, a townhouse can be a great option.
Not only do townhouses provide affordable pricing options, but they can also act as an excellent long-term investment. Owning any home comes with tax benefits and an opportunity to build credit and equity.* Townhouses are no exception.
Townhouses also offer opportunities to gain income as a second home. In addition to building value over time, townhouses can be rented out, opening a new revenue stream as the owner continues to build equity. Since these developments are often built in high-demand areas, they act as an attractive option for potential renters looking to move to the community.
Allowing tenants in these townhouse communities, however, is not always permitted and is decided by the local homeowners association.
Homeowners association governance
Most townhouse communities will be maintained by a homeowners association. These committees, often composed of neighborhood residents, enforce local rules outlined in the by-laws for the complex and cover maintenance of the common area.
Townhouse communities benefit from these organizations by setting a standard of care for the residences and preserve the quality of shared spaces like tennis courts, lawns or pools.
Many of these organizations carry insurance policies to cover the cost of exterior damage or damage to common areas.
Difference between townhouse and condos
Townhouses are attached housing units that come with multiple floors, which might sound a lot like buying a condo. They both offer affordable living options in urban settings and are both usually a part of a larger complex. However, while these terms are often used interchangeably, there are important differences between condos and townhouses that buyers should be aware of.
The major difference between condos and townhouses all comes down to ownership. While both types of housing can be owned, townhouse owners have a claim to the land the dwelling sits on. This gives townhouses an ownership structure that is more similar to single-family homes, making the property title holder responsible for the maintenance of any outdoor space surrounding the home.
Condo owners, alternatively, do not have an individual claim on the land their building sits on, but rather share land ownership with the residents of the complex. Outdoor condo spaces are usually maintained by the local homeowners association, with residents paying slightly more in fees to cover these services. Since townhouse owners are financially responsible for the upkeep of their land, these extra maintenance costs do not apply.
Homeowners association fees tend to be slightly higher for condo complexes. In addition to extra maintenance costs, these complexes often provide amenities for residents such as communal lawns, pools and exercise rooms. Some townhouse communities may include these features, but they are more common among condos, thus the higher HOA fees.
The amount to be paid in these fees can vary widely between townhouse communities, with some offering different services than others. Before purchasing a townhouse, it is important to fully understand the rules and regulations set by the local homeowners association.
What is a homeowners association?
Unlike single family homes, townhouses don’t come with the added luxury of space between houses. The compact nature of townhouse communities requires certain rules for community members to preserve the security and privacy that comes with homeownership. To maintain the level of standards that ensures a happy and comfortable community for all of the residents, townhouse communities will rely on a homeowners association.
A homeowners association upholds these norms by setting guidelines and enforcing rules that all buyers agree to when they move into the neighborhood. These committees are often composed of community members and participation may be required in certain developments.
Planned Unit Developments, or PUD’s, are properties that have homeowners associations but come with less risk, fewer guidelines, and a lot less documentation needed for the loan approval than compared to condos.
However, while most townhomes are PUDs, there are some that are condos. To determine whether a building is classified as a condo or PUD is to review the association’s bylaws. These bylaws outline how the homeowners association has declared ownership in that complex.
The property being “fee simple” does not confirm condo vs. PUD, nor does the tax pin, tax assessor, or the zoning. Only the association’s legal documents can establish the ownership structure. Condos come with more requirements than PUDs, so it’s important to keep that in mind when exploring townhouse options.
Community members make scheduled payments to their HOAs, which are paid monthly, quarterly or annually, depending on the local rules. The amount paid in HOA fees can also vary widely between neighborhoods. These payments cover general maintenance of the complex as well any communal amenities that members can enjoy.
HOAs also have the authority to impose penalties for missed payments, such as charging late fees or, in extreme cases, impose a lien on the property.
Homeowners associations are also responsible for the enforcement of community rules, such as noise complaints or unkempt lawns, and can also levy fines against community members who violate those rules.
Different homeowners associations can have a wide range of rules and applicable fees, so it is important to understand local HOA regulations when deciding to buy a townhouse.
While they may not come with the footprint of single-family homes, townhouses still offer the space and privacy that comes with homeownership.
As an affordable option in urban and suburban areas, townhouse communities offer an opportunity to own property that would otherwise fall beyond a buyer’s price range. You can learn your price range and find out if a townhouse is the right fit by applying for mortgage prequalification.