7

My question is- What are some of the pros and cons of buying a townhouse vs a standalone house for a first home for my girlfriend and I?

Some potentially relevant information:

  • We live in the US and are both citizens
  • I can get about 45% of the total cost upfront and would like to keep payments under $875/month.

  • I'd like to avoid a HOA.

  • I would live alone for around a year and then my girlfriend would move in and help with bills (the mortgage and property will still be 100% mine).

  • The area I'll be moving to will be a college area.

  • We have no kids.

  • I'm going to pursue a master's degree at the university and I work about 5 minutes from it so I'll live here at least a few years.
  • I'm on the fence if I want to see or rent when It's time for me to find a new home due to liabilities brought on by renting a property.

There are a lot of townhouses around where I'm looking because it's a college town, but there are also houses a little farther out but not far enough to be an issue.

Any advice would be great, thanks!

  • 1
    Do you want to turn it into a rental when you move on, or just sell it? – Hart CO Jun 1 '17 at 17:30
  • 7
    Finding a decent townhome without an HOA will be tough. – acpilot Jun 1 '17 at 20:40
  • 2
    Seriously think about getting married before purchasing a home to live in together. If either you or your girlfriend (or any of your parents) is at all religious, talk to your pastor about what your church does to encourage successful marriages. – Jasper Jun 2 '17 at 3:57
  • 2
    In many states in the United States, your significant other can claim a share of the home's appreciation if she made a significant contribution to either the household expenses or the in-kind upkeep of the home, even if her name is not on the title nor on the mortgage. Talk to a real estate lawyer or family law lawyer in your state about these issues. – Jasper Jun 2 '17 at 3:58
  • 1
    @user8032968 -- Yes. In many states, her contribution does not even have to be financial. Cleaning the house, or washing the dishes, or preparing meals can suffice. (I don't know what the threshold is.) The theory is that money (and effort) are fungible. If she pays the power and water bill, that frees up money for paying the mortgage. – Jasper Jun 2 '17 at 15:17
10

First, some general advice that I think you should consider

A good rule of thumb on home buying is to wait to buy until you expect to live in the same place for at least 5 years. This period of time is meant to reduce the impact of closing costs, which can be 1-5% of your total buying & selling price. If you bought and sold in the same year, for example, then you might need to pay over 5% of the value of your home to realtors & lawyers!

This means that for many people, it is unwise to buy a home expecting it to be your 'starter' home, if you already are thinking about what your next (presumably bigger) home will look like. If you buy a townhouse expecting to sell it in 3 years to buy a house, you are partially gambling on the chance that increases in your townhome's value will offset the closing costs & mortgage interest paid. Increases in home value are not a sure thing. In many areas, the total costs of home ownership are about equivalent to the total costs of renting, when you factor in maintenance. I notice you don't even mention renting as an option - make sure you at least consider it, before deciding to buy!

Also, don't buy a house expecting your life situation to 'make up the difference' in your budget. If you're expecting your girlfriend to move in with you in a year, that implies that you aren't living together now, and maybe haven't talked about it. Even if she says now that she would move in within a year, there's no guarantee that things work out that way. Taking on a mortgage is a commitment that you need to take on yourself; no one else will be liable for the payments.

As for whether a townhouse or a detached house helps you meet your needs better, don't get caught up in terminology.

There are few differences between houses & townhomes that are universal. Stereotypically townhomes are cheaper, smaller, noisier, and have condo associations with monthly fees to pay for maintenance on joint property. But that is something that differs on a case-by-case basis. Don't get tricked into buying a 1,100 sq ft house with a restrictive HOA, instead of a 1,400 sq ft free-hold townhouse, just because townhouses have a certain reputation.

The only true difference between a house and a townhouse is that 1 or both of your walls are shared with a neighbor. Everything else is flexible.

  • 3
    @user8032968 Just be majorly aware of HOA fees... many townhome/condo complexes can have steep HOA fees. When I last shopped, a $400 monthly HOA fee was roughly equivalent of an extra $40,000-$60,000 in mortgage. Put another way, the condo/townhome may be cheaper than a stand-alone house, but the HOA fees might mean you're effectively paying more. So a $130,000 mortgage + $400 monthly HOA fees on a townhome might feel like a $180,000 house in terms of your monthly expenses. HOA's might also restrict your rights, such as being able to rent your place out if you choose to in the future. – SnakeDoc Jun 1 '17 at 19:24
  • 2
    @user8032968 You can certainly find neighborhoods of stand-alone houses without HOA's. HOA's in housing complexes are usually designed to protect the investment of those living in the neighborhood. For example, they might prohibit people from painting their house neon pink, or having really unkempt yards, or broken down cars in the street... all things that can sink property values. Sometimes they prohibit rentals as well, or only allow a certain number of rentals at a time. (too many renters tends to destroy property values, unfortunately). – SnakeDoc Jun 1 '17 at 20:33
  • 2
    @user8032968 So, both have slightly different abilities and priorities. In a condo complex, the HOA usually owns the land and helps maintain the buildings (roof, walls, paint, landscaping. of course it depends on the particular HOA). In a neighborhood with an HOA, you usually own the land and your building, but the HOA limits what you can or cannot do with it, all in the name of protecting everyone's investment. All HOA's are different, and you can request to review the bylaws before signing anything. Some people love HOA's, others not so much. It all depends on what you want :) – SnakeDoc Jun 1 '17 at 20:37
  • 2
    @SnakeDoc In particular, Condo fees for a townhouse condominium project will be partially related to joint maintenance, including roof repairs etc.. I'd be hesitant to buy a freehold townhouse just for the risk of ultimately being fully liable for repairs not anticipated through condo fees. What you need to watch for, in either a detached house or townhouse, is that there are no services you don't want to pay for (ie: don't buy a place with pool access, if you hate swimming, because you'll be paying for it every month!). – Grade 'Eh' Bacon Jun 1 '17 at 21:36
  • 1
    In the United States, the cost to buy and sell a typical home, plus mortgage application fees, can easily add up to 7 - 9 percent of the value of the property. – Jasper Jun 2 '17 at 3:49
5

If you buy a townhouse, you often are in a condominium arrangement in the US (when you're really in a rowhouse in particular). So that's a downside right away: you have to have a HOA, or at least some sort of common agreement, though it might not have formal meetings. Everyone who owns an interest in the entire group of townhouses gets some say in landscaping and such.

Beyond that though, townhouses (and similarly, condominiums) are often easier to own (as they don't have as much maintenance that you have to do), but more expensive because you pay someone to do it (the landscaping, the external repairs, etc.). You likely don't have as much control over what the external looks like (because you have to be in agreement with the other owners), but you also don't have to do the work, unless your agreement is to collectively do the mowing/landscaping, which you should know in advance.

I wouldn't underestimate the value of easier, by the way; it's very valuable to not have to deal with as many repairs and to be able to go a week without thinking about mowing or watering. In that sense it can be a nice transition into ownership, getting some-but-not-all of the obligations. But if that's something you really value, doing the landscaping and mowing and whatnot, that's relevant too. You can always tell your realtor to look for townhouses where the owners do some/all of the landscaping, though that opens up a different can of worms (where you rely on others to do work that they may not do, or do well).

They're also somewhat noisier; you may be sharing a wall (but not necessarily, air-gap townhouses do exist) and either way will be closer to your neighbors. Does noise bother you? Conversely, are you noisy? In a college town this is probably something to pay attention to.

Price wise, of course stay well within your means; if being close to the city center is important, that may lead you to buy a townhouse in that area. If being further out isn't a problem, you'll probably have similar choices in terms of price as long as you look in cheaper areas for single family homes.

3

I very much agree with what @Grade 'Eh' Bacon said about townhouses, but wanted to add a bit about HOA's, renting after moving on, and appreciation:

HOA's
HOA's can be restrictive, but they can also help protect property values, not all HOA's are created equal, some mean you have zero exterior maintenance, some don't. You'll be able to review the HOA financials to see where the money goes (and if they have healthy reserves). You'll see how much they spend on administration, I think ~10% is typical, and administration can be offset by the savings associated with doing everything in bulk. A well-run HOA should actually save you money over paying for all the things separately, but many people are happy to do some things themselves rather than pay for it, and would come out ahead if they didn't have an HOA. And of course, not all HOA's are well-run. Just do your best to get informed

Transitioning to Rental
If you are interested in trying your hand being a landlord after living there for a while, a townhouse typically exposes you to less rental risk than a single-family home, because the cost is typically lower and if the HOA maintains everything outside the house then you don't have to worry as much about tenants keeping a lawn in good shape, for example.

Appreciation
Appreciation varies wildly by market, some research by Trulia suggests in general condo's have outperformed single-family houses over the last 5 years by 10.5%. The same article notes that others disagree with Trulia's assessment and put condo's below single-family houses by 1.3% annually. My first townhouse has appreciated 41% over the last 3 years, while houses in the area are closer to 30% over the same period, but I believe that's a function of my local market more than a nationwide trend. I wouldn't plan around any appreciation forecasts. Source: Condos may be appreciating faster than single-family houses

My advice
You have to do your research on each potential property regardless of whether it's a condo/townhouse/single-family to find out what restrictions there are and what services are provided by the HOA (if any), your agent should be provided with most of the pertinent info, and you may not get to see HOA financials until you're under contract. Most importantly in my view, I wouldn't buy anywhere near the top of your budget. Being "house-poor" is no fun and will limit your options, don't count on appreciation or better income in the future to justify stretching yourself thin in the short-term.

0

Houses tend to appreciate more than condos. Houses are also more expensive. So it's a choice.

You mention your girlfriend will be buying it with you. Take the time now to decide what will happen if you split up and put it in writing. Are you splitting the downpayment and mortgage 50/50? If not things can get complicated. Also consider home improvement costs, etc.

If you think she is "the one" and you'll end up starting a family together, look at the location, nearby schools, etc. Sure, it may sound too early to be thinking about these things, but if you get a head start on finding a nice house you could save a lot of money and build a lot of equity with some smart decisions today.

  • 3
    Do you have statistics on that first paragraph? I don't think that's necessarily true, and particularly dependent on location. And, condo != townhouse necessarily (townhouses can be condos or not, and condos can be townhouses or not.) – Joe Jun 1 '17 at 18:05

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.