Townhouse or condo and how to tell?

Question

I am looking at replatting a couple six plex buildings which are set up like row houses. Currently on 4 parcels. With the irregular shape of the lot I think a common area or HOA owned parcel will be needed for the majority of the parking and lawn. The individual unit would have lot lines going down the shared wall and would include 1/6 of the building, a piece of land between the building and the detatched garage, and 1/6 of the detatched garage structure. Would these be townhouses for sale or condos for sale?

I have a team I trust, but having heard a few arguments both ways. Curious to know what the biggerpockets verdict would be.

Matt Devincenzo · Answer

@Ben S. these will be whatever you decide to plat them as. There are (usually) different code requirements within your local municipal code for townhouses separate from other uses that will state lot areas and criteria, so you need to look there and decide how (or if) you fit inside the townhouse 'box'. Generally it sounds like these would qualify as townhouse since the lot lines are in fact fee simple ownership of the underlying land. But none of us can answer that, that is something that your engineer/surveyor need to layout based on the codes for your area.

This is kind of a you can make a townhouse a condo, but you can't necessarily make a condo a townhouse. I've done some 'condos' that are detached units with their own exclusive use area that is almost like a lot. But they wouldn't meet certain criteria like street frontage or minimum lot area for detached units. So we made them condos on a single lot which meets the criteria and just platted the condo spaces to create the interior 'lots'

From there your land use attorney will craft the CC&Rs and HOA doc's to 'fit' the situation i.e. what is owned vs what is common area ect.

Matt Devincenzo · Answer

The unapproved HOA part is a separate issue that is an lending guideline and doesn't have anything to do with mapping/subdivision. You can set up an HOA for SFR, townhouse, condo, commercial ect. That doesn't have anything to do with the ownership type, it has to do with whether you need an entity controlling the common areas.

I'm not sure how it works specifically in your area...here in CA, the BRE regulates the creation of HOAs for all developments with 4 or more units. I'm including a link to their manual...read down on page two to read some guidance on it...and then read page 16 under "Subdivisions – Ownership Form vs. Physical Form". Basically you're asking two separate things first is re: how you subdivide (fee simple vs condo or airspace ownership this is a local regulatory guideline) the other is how you address issues resulting with that subdivision i.e. HOA or simply 'agreements' (this is usually a state regulatory guideline)....and I guess third is how do you make sure you get FHA approval for your association so you can sell to the largest number of end buyers (this is a federal lending guideline).

You can't mix the definitions from one arena into the other, they all function with each other and at the same time autonomously. Hopefully this helps...it can be confusing so you really have to 'define your terms' based on who you are talking to.

Wayne Brooks · Answer

@Ben S. If the city says the small “lots” for the garages are acceptable, then okay.  My thought was they may not allow a legal lot for the garages that are only 20’ wide or so.

Here, we see the set up you describe usually as condos, where there are no imdividual “lots”.

Buyers I think will generally prefer the “sfr townhome” ownership as opposed to condos, but one small concern with villas is replacement of individual roofs....many set up like this make the roof maintenance/replacement part of the hoa responsibility, like in a condo set up.  This eliminates the mismatch look of new roof sections mixed in with old roofs.

Ben S. · Answer

@Matt Devincenzo Thank you!

Ben S. · Answer

@Matt Devincenzo I appreciate the info, it sounds like fee simple ownership of the underlying land is the key for it to be a townhouse.  But then I've also heard that a buyer won't be able to get FHA financing on a unit that is part of an unapproved HOA...

@Wayne Brooks Thanks for the info.  I like the sounds of the HOA for the purpose of maintaining the roof and exterior for the reasons you stated.  Without the individual lots it does look a lot like a condo...

Ben S. · Answer

@Wayne Brooks Could you explain?  I have discussed with the city and they say all is good, but I might be asking too broad of questions to them to get thoughtful answers.

Ben S. · Answer

@Russell Brazil Sorry I wasn't clear.  The current setup has one building in one parcel, one building in another parcel, and two parcels have no buildings, just parking and lawn area.  I plan to purchase, replat, and resell individually.  I would like to make sure they are townhouses with an HOA instead of condos to avoid some financing hassles for the buyers of the individual units.

Wayne Brooks · Answer

You could that either way except the garage pieces may not meet local requirements.

Russell Brazil · Answer

Look at the deeds.

Townhouse or condo and how to tell?

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