Condos and townhouses have become increasingly popular among homebuyers due to their affordability and low maintenance. These homes cost less than traditional single-family homes, making them appealing to diverse individuals. Condos and Townhomes are popular with first-time buyers, downsizers, and busy professionals looking to minimize home upkeep.
Condo vs. Townhouses
Most home buyers are unaware of the differences between condos and townhomes. While these two home types share many similarities, some significant differences exist. If you are considering purchasing a condo or a townhome, you should understand these properties’ differences, advantages, and disadvantages. Let’s start by defining each property type:
What is a Condominium?
People often consider condominiums to be a type or style of home. Although condominiums often appear uniform, they don’t necessarily follow a specific structural or architectural style.
The word “condominium” has Latin roots. “Con” means “together with,” and “dominium” means “right of ownership.” Therefore, when you combine these words, “condominium” refers to a person’s right of ownership in a property together with others. Essentially, a condominium is a type of real estate ownership where each unit owner has the right to own and occupy their unit. It also shares ownership and responsibility for common areas and amenities with other unit owners.
What is a Townhouse?
Townhouses, on the other hand, are a type of home. Their roots are in the old East Coast “brownstones” or “row houses” famous from the mid-to late 1800s.
Besides style, ownership is the main difference between townhomes and condos. When you buy a townhouse, you own both the land and the actual structure of your property.
If townhouse communities have amenities like a pool or clubhouse, the townhome owners will also own a fractional share of those.
Comparing Condos and Townhouses
Similarities
Common Walls – Common Walls – Common walls are the most apparent similarity between condos and townhouses. Townhouses will generally share at least one common wall with a neighbor. Of course, the end units of a townhome development share only one.
Condominiums, on the other hand, could share more walls, including ceilings and floors, depending on the design of each unit.
Common Interest Communities or CICs – Condos and Townhouses are part of a “Common Interest Community.” A common interest community is a type of residential development that typically includes shared amenities. These amenities include swimming pools, fitness center, parks, and community spaces. The idea behind shared amenities is that they provide residents with additional benefits and value beyond just their homes.
In a common-interest community, all owners must maintain and pay for these shared amenities. This means that each owner pays a share of the costs associated with these amenities, typically through monthly or annual fees. In exchange for these fees, all residents can enjoy the benefits of the shared amenities.
Covenants and Bylaws – Condominium and townhome communities usually have covenants and bylaws to ensure the properties are maintained and managed consistently. These guidelines establish rules and regulations that all residents must follow, from property maintenance and repairs to noise levels and pet policies.
Home Owners Association HOA – Homeowners associations (HOAs) Homeowners associations (HOAs) manage and govern common-interest communities, including neighborhoods, condominiums, and townhouses. HOAs are typically governed by a board of directors responsible for making decisions and enforcing the Covenants and Bylaws related to the community.
One of the main responsibilities of an HOA is maintaining and managing shared amenities, such as parks, pools, and community spaces. This can include tasks like landscaping, maintenance, and repairs. Additionally, HOAs enforce community rules and regulations, covering various topics such as noise levels, property maintenance, and parking.
HOAs may also collect monthly HOA fees from homeowners to fund the maintenance and upkeep of shared amenities and common areas. These fees typically cover expenses such as landscaping, insurance, and repairs.
Overall, an HOA aims to create a cohesive and well-maintained community for all residents to enjoy. While some homeowners may find the rules and regulations of an HOA to be restrictive, others appreciate the benefits of living in a well-managed and maintained community.
Differences
Architecture – Condos tend to be part of a larger building, similar to apartment buildings. They share at least one and, in some cases, many walls. Condo buildings are likely to also share neighbors both above and below. It’s nearly impossible to distinguish between apartments and condominiums from an architectural standpoint. Think of a condo as an apartment you own.
Townhouses are similar to Condos in that they may share a wall or walls, meaning they can be detached homes. Townhomes are more of a style than condos. Townhomes tend to look more like single-family homes. They are generally two stories and side by side, like an East Coast brownstone or rowhouse. Townhomes can also come in a single-level configuration, but this type of property is often called a “Patio Home.”
One of the most important differences between a condo and a townhouse is what you own. In a condominium, you own an interest in the entire property. This can be a difficult concept to grasp; you don’t own anything tangible. You own the air space inside of your Individual units as well as a fractional interest in the development’s common elements.
A townhouse is a type or style of property, and you own the land your townhouse is built on and the actual townhouse structure. In a townhouse development, the owners may or may not share ownership of the common amenities, but they most certainly pay the dues to maintain and use them.
Ownership – The key difference between condos and townhouses is related to ownership. Condominiums or condos are a type of real estate ownership. You are essentially buying the interior of your unit along with a fractional co-ownership of any common amenities, things like recreation centers, pools, tennis courts, etc., and common areas of the structures and land among all unit owners.”
Townhouse owners own the land the home is built on and the home itself. Often, you will have a front yard and a small yard or private outdoor space in the back of the property that you own as well. The amenities and common spaces are owned by the homeowners’ association but used by the residents. The homeowners are responsible for maintenance as well.
Cost – Condos are a popular option for buyers looking to enter the market. First-time homebuyers find condos a very affordable way to get into homeownership. Buyers must beware of high fees, which can negate the initial price benefit.
Insurance – The Home Owners Association will be required to carry insurance for the development. The Condominium Owner will need condo insurance similar to renters insurance to cover their belongings. Depending on the townhome development, the owner will either need a homeowners insurance policy or if the association provides insurance for the structures, a renters policy will be required for the owner’s belongings.
Property Taxes –The two factors establishing the property taxes you’ll have to pay each year are your home’s assessed value and your local mill levy. The assessor establishes the assessed value; they look at things like the lot size, square footage, the number of bedrooms & bathrooms, and comparable properties nearby. The mill-levy side of the equation is based on the number and quality of your local amenities.
Amenities and services like public schools, libraries, police departments, fire departments, parks, trails, and open spaces all play into the mill levy. The more amenities and services your area has, the higher you can expect the mill levy. Since condos and townhouses are usually smaller than traditional houses, taxes are also generally lower. Additionally, since the common areas and amenities are shared, this also helps lower property taxes.
Fees – The particular development association will affect your monthly fees. But, generally, a condo association will have higher maintenance costs because they take care of more maintenance and amenities than a townhouse, such as lawn care and snow removal. So, condos usually have higher HOA fees. The fees are usually lower because more maintenance responsibility falls to townhome owners, and townhome communities generally have fewer amenities than condo developments.
Privacy– Common walls, shared amenities, and common areas generally make Condominiums less private than Townhouses. Fewer common walls, separate entrances, and some yard space make townhomes more private than condominiums. While both offer great options and can make you feel like part of a community, it is a real plus if this is one of your personal preferences.
Convenience is the primary benefit enjoyed by both condominium and townhome owners. Exterior maintenance is non-existent in a condo and is usually minimal in a townhouse. The amenities available to owners of both condos and townhomes are another distinct benefit.
Why join a gym when everything you need is just steps from your front door? Another benefit is a sense of community, especially for people who like social interaction. Most developments have a clubhouse and community events; if you enjoy this type of interaction, a condo or townhome development might be just what you’re looking for.
Disadvantages of Condo and Townhome Living
There are downsides to condo and townhome living. To start, this type of community provides much less privacy than a single-family home. The common walls mean you’re likely to hear noisy neighbors and your neighbors are most likely to hear you.
Rules, regulations, covenants, and restrictions are a big part of living in a condo or townhome community. These rules are in place to make the community more appealing to a wider range of people. While many of the restrictions may seem a bit much for some, they are appealing to others.
It’s important to familiarize yourself with the particular restrictions in any community you are considering living in. This goes for single-family homes with an HOA and especially condo and townhome communities. When you close on the property, you agree to adhere to the rules, covenants, and guidelines of the community. Failure to abide by these guidelines can result in warnings, fines, and in some extreme cases, property liens or a cloud on the Title.
If you think adherence to these guidelines is going to be a problem, it’s best to avoid these communities altogether.
Pet restrictions are another disadvantage to living in a condo or townhome community. Homeowner associations will often implement breed restrictions as well as weight restrictions. These restrictions generally focus on what are considered “dangerous breeds”. So, if you have or plan to acquire what would be considered a “dangerous breed” or big dog, over 45 lbs., these types of communities are not a good idea.
Limited parking is another drawback to condo and townhome living. Most condominiums will have limited parking options consisting of carports or outdoor parking in assigned spaces. Some condos do come with a garage but these are rare.
Townhomes are similar in this regard, while townhomes are more likely to come with a garage, it will most likely be a one-car garage, fine if you only have one car. If you are the type of person that requires multiple cars, this is something to consider before buying.
Storage is another consideration when buying a condo or townhouse. This one is similar to the parking issue. While condos and townhomes will likely have storage, it is limited. If you need more than a large closet full of storage space, you’ll likely need to find offsite storage. If you need to pay for that storage, this expense can quickly eat into any savings you realize by purchasing a condo or townhome.
Fees are another financial consideration when looking at any community that has an HOA. Both condominium and townhome communities are going to have HOAs and those HOAs charge fees. These fees go to cover the cost of maintaining the community as well as the amenities enjoyed by the residents. These fees can add up and eliminate any savings advantage you thought you were realizing by buying a condo or townhome.
It’s essential that you understand what association fees you will be responsible for prior to closing on any property located in a Common Interest Community. In many cases, the advantage you realize in a lower payment can be eliminated by high fees.
Special Assessments are another consideration that can result in additional fees which are used to make repairs and perform required maintenance. These fees are generally implemented when the costs of improvements exceed the money in the reserve fund.
Special assessments are a very controversial subject because they generally result from poor planning and a lack of foresight about the condition of the property and the state of the reserve funds.
Rental Restrictions and Considerations
Another potential disadvantage of condo and townhome living is rental restrictions. Many developments have caps on the number of units that can be rented out at any given time. These restrictions are often in place to maintain a certain percentage of owner-occupied units, which is crucial for FHA lending regulations.
These restrictions can significantly impact investors or homeowners considering renting out their property in the future. Before purchasing, it’s essential to review the HOA documents to understand any limitations on rentals.
Additionally, potential landlords should consider the financial implications of renting out a condo or townhome. HOA fees can affect whether the property will generate positive cash flow as a rental. Unlike traditional single-family homes, where tenants often cover all utilities and maintenance, condo and townhome owners are responsible for paying HOA fees even when the unit is rented out. This ongoing expense can eat into potential rental income and should be factored into any investment calculations.
Prospective buyers should also be aware that some lenders may have stricter requirements or higher interest rates for properties in developments with a high percentage of rental units. This is due to the perceived higher risk associated with such properties.
Buying a Condominium or Townhouse
If you are considering purchasing a condominium or townhouse, you should keep several things in mind as you proceed.
Pricing
One of the most attractive aspects of purchasing a condo or townhome is consistency in pricing. Because the units are so similar, pricing is easier to deal with than in a single-family property. Pricing is more consistent because there is minimal variation between units in these communities. Unless a particular unit has unique characteristics, it’s easy to use comparative pricing models to determine how much a unit is worth.
Governing Documents
Understanding the rules and regulations of where you will be living is essential. Whether you’re buying a condo or a townhouse, you are Buying into a covenant-controlled community. Certain expectations accompany this purchase, and adhering to the covenants is one of those expectations.
When you close on the property, you agree to adhere to those covenants. The penalties for failing to adhere to these rules can start with a simple warning followed by potential fines and, in some extreme cases, end with a lien on the property. No one wants to go through this experience. So, read the governing documents before you close on a property with an HOA.
Find out what the current issues are
Talk to the current residents and find out what the hot issues are. You want to make sure you are buying into a well-run community. Make sure there are no big issues that might require a special assessment. If there are issues, you’ll want to investigate how big the reserve fund is.
Owners ultimately pay for upkeep, repairs, and maintenance, so you should know if a big expense is looming before closing the property.
How does the board/management deal with owners
Another thing you can learn from the current owners is how the board and management group deal with owners and their requests. The relationship should be cooperative and respectful. If the relationship is adversarial, you will want to proceed with caution.
Financing Your Condo and Townhome Purchase
When we compare financing for condos and townhomes, the process is similar to funding for a single-family home; the only real difference is that it affects condos vs townhouses. Since condominiums offer more risk for the lender, the interest rate will be slightly higher. You can bring the interest rate down on a condo loan with a larger down payment of at least 20%.
In some cases, the lender may need to review the development before lending on a unit. This review assesses the risk involved with reserve funds and other potentially risky aspects of the project’s management.
Another factor that affects condominium developments is eligibility for government financing. This relates to FHA loans and VA loans. For a lender to make an FHA or VA loan on a condo or townhome, the development has to be what is known as FHA or VA-eligible.
Eligibility requirements consider things like the rate of owner-occupied units; more owner-occupied units is desirable. A strong association balance sheet and ample reserve funds are other positive factors. Finally, the development is free of litigation.
Remember that financing is related to risk, and lenders are looking to avoid risk. As a homebuyer, you would be wise to avoid risk as well. Here is a great step-by-step guide to Financing a Condo.
Selling Your Condo or Townhouse
Selling a condo or townhouse presents different challenges than selling a single-family home. The condo townhome market can often be seasonal. If the property is in a resort area, waiting for the peak selling season may be in your best interest.
Additionally, condos have a slower appreciation rate than townhomes, so when it’s time to sell, you might not realize the appreciation you were expecting.
Another consideration is pricing. Because these properties are so similar, it is easy for potential buyers to determine what they should pay for a property based on historical sales. The prices are similar unless the unit has unique features like a view or access to some amenities or convenience. The trick is to maximize your profit without overpricing and risking a lengthy time on the market, or problems with the appraisal, especially if you are in a seasonal market.
Transparency is important when selling a condo or townhome. Because these properties are part of an association, you are also selling the association. Make it easy for potential buyers to get information about the development.
This means supplying things like governing docs, newsletters, and any other information that would help them decide if this is where they want to live. They will eventually learn about the neighborhood, and concealing information only prolongs the inevitable. It is better to be transparent and find the right buyer than waste time and money with buyers who don’t like what they discover.
Conclusion
A condo and townhouse community can be an excellent place for the right person to live. Finding the right fit takes a little knowledge and homework, like anything real estate-related. If you think you might be a good candidate for this type of living situation, use the information provided to create your own priorities, and have fun deciding between a condo vs. a townhouse and searching for your new home.
If you are interested in finding a condominium or townhouse in Colorado Springs, we have a Real estate agent who would love to help you, so please feel free to contact us!