Townhouse vs Single Family vs Duplex

[Ken Radino]

Hello all,

I am a new investor that hasn't made a deal yet. I am looking for pros/cons on different property types keeping in mind that I am just starting out and would be managing myself.

I like the idea of a townhouse that has maintenance provided (although HOA dues may rise). It would also give me a newer property (less than 12 years old) than if I bought a SF or Duplex (Blue Springs, MO).

When I lived in a townhouse, I know the HOA paid for trash, snow removal, lawn care, had amenities such as a pool and workout room, and even had insurance in case a roof or siding needed repairs.

I also like single families because I can get a bigger return. Most of the ones I can afford are in bad shape, and I am not a handyman (video director). My concern with duplexes is who is responsible for lawn care/snow removal, and most in the area that I can afford are section 8, which I know very little about.

I am lucky to have all these options in my town, but I want to hear what others think a newbie should start with and why. Please keep in mind that I would prefer to buy and hold. Thank you in advance for any and all input.

[Mike H.]

Your best value - all things being equal in terms of price to rent ratops - sfh's are going to be your best investment.

But all things are never equal. To me, I'm open to either of those 3 home types depending on the numbers. But I'd also discount townhomes and duplexes based on other things which means I'd want to see better price to rent ratios on either of those before I'd buy one of them over a SFH.

1) Townhomes. If you have an HOA, then you have to factor in both the expense (obviously) and the risk. The risk that the HOA fees can go up. The risk that the HOA has the ability to change their bylaws and no longer allow you rent to the units out.

Also, townhomes are much closer to apartments so you'll typically have more turnover and higher management effort needed.

2) Duplexes. Usually a little less likely to have hoa's with duplexes but still possible. Duplex is a little closer to a home with only one shared wall on the unit but still not the same privacy a sfh can give. Again, that tends to lead to more turnover than a SFH. And, again, you have the risk of the how do repairs get done for duplexes?

That being said, there's still a number that makes sense for each of the three.All things being equal. If I could buy a home for 100k and get 400 a month gross profit (i.e. before repairs or vacancy), I'd want to buy a simlar duplex and get about 450 to 475 a month in gross profit and, for a townhome, probably 500 a month in gross profit in order to make it worth the risk.

Now if you're sfh's are kicking off 350 a month in gross profit where you're at, then I'd add $50 for each product class and go from there.

One other factor I'd throw out there though. Sometimes, you may need to dropdown to towhomes or duplexes in order to get into a certain area where you can really make hay.

Example would be a really nice area where the sfh's are priced so high because of the area's great schools that you can only make 100 a month gross profit - which is basically a nonstarter that you can't invest in.

But maybe some townhomes in the same town can be had that will generate 300 a month gross profit. Its good enough and allows you to build equity and the fact that the town has such good schools overrides the risk of higher turnover as no other decent rentals are available.

So, while I say that SFH's are the best investment class between the three, there are always things that make the numbers work regardless and make each of them a good deal.

I have 26 sfh's and one townhome. But the townhome I own has no HOA and is in the same town I live in - where its been next to impossible to buy homes that make sense as investment properties. I love that the unit is so close and that I've had the same renter in there the entire time.