Every Tuesday, I go into detail a question I frequently get asked. Are Single Family Homes a better long term investment than Townhomes? Let’s look into it.
A single-family home is an independent residential structure that sits on its own land and is designed to be used as a single dwelling unit, having just one kitchen, unshared walls and unshared utilities A townhouse is an attached home also owned by its resident. One or more walls are shared with an adjacent attached townhome.
Townhomes typically have an HOA or a Homeowners Association. A homeowner’s association is an organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and its residents. Some people really hate having this monthly fee but it’s not so bad as most associations would cover the exteriors of your home including paint, landscaping, and your roof. Thus, your insurance premiums tend to be lower. Standard townhomes HOA range between $250-$450 a month but it may vary by location.
Many of the newer Single Family Homes after the 90s also have an HOA but the monthly amount tends to be much lower. They may cover any communal space like swimming pools and shared regular pavement of roads. They also may have specific rules as to overnight parking on the streets so it does keep the streets cleaner and less congested.
So what are the advantages and disadvantages of owning a Single Family? For Single Family homes, you own the land itself so you have a lot more flexibility and options as to what you want to do with it. Whether it’s creating your own hydroponic garden, doing an extension in the future, or even building out an ADU/In law unit, that’s up to the owner. The downside? It’s significantly more expensive to get into a Single Family home when compared to a townhome in that same city, typically a few hundred of thousand more, and there is also more upkeep/repairs that you are responsible for. So what about townhomes?
The advantages are that the price point entering is much lower and you are typically in rates vicinity to a lot of commercial space nearby. Most townhomes these days have three if not four levels which may make it more difficult if you are living with your parents going up and down the flight of stairs. Your HOA dues may increase over the years and that’s out of your control.
Now, what’s the better long term investment? I tracked the returns of Single Family Homes and Townhomes all the way back to 2006 in several cities around the Bay Area. You may actually notice that it’s very comparable in the specific cities that are being measured and in many cases, Townhomes/Condos have out performed Single Family Homes. The more important measurement isn’t whether you should pick between the two asset types but to pick in great locations. The city matters more. For example, if you bought a Townhome in Sunnyvale or Santa Clara in 2006, you would’ve done better than owning a Fremont Single Family home during that time.
I hope this was enlightening! Location matters more than the type so if you are thinking from an investment perspective, be sure to strongly factor that in. The supply of new properties in these areas are very low with little new development given the lack of space. What do you think? Were you surprised with this result?