How do Townhomes Compare to SFRs and Condos as Rentals?

[Christopher Noto]

As most of you probably know Condos are far from ideal as rental units because HOAs typically have far too much control and are way too expensive.

The opposite of a condo is the HOA free SFR, where you're much more free to do as you please.

But where do townhomes fit between the two? Townhomes have HOAs too, like condos, albeit a much lesser monthly due. My question however is is it common for the townhome HOAs to have limitations similar to condo HOAs? I'm specifically talking about anti-landlording rules such as owner occupant to tenant ratio rules or rules preventing you from renting your unit out until X amount of time passes. 

[Marc Jolicoeur]

Townhomes are not any different from Condos really.   I would guess that in most states there is not much difference between the two.

Condo Association = Home Owners Association. They are the same thing.  There may be different traditions for naming these in different parts of the country but I think by your state laws they are treated the same. 

Townhomes may have lower HOA fees than Condo fees for an apartment with many amenities such as party room, exercise equipment, on-site management, pools, playground. Then again, the townhome HOA fees may be larger if they have amenities such as pools, playgrounds, community gates, security guards, etc...

When buying Condo or Townhome for a rental, the following are the main issues to consider before you buy:

- Does the association allow rentals (in the by-laws)?

- Are there extra HOA rental fees, deposits, or applications needed (in the by-laws)?

- Is the HOA fee reasonable from a maintenance perspective and still allows you to cash flow?

- What does the HOA fee cover for utilities (water, trash) and hazard insurance?

- Will your lender charge more interest rate or points for a Condo?

- Will your lender charge more interest rate for having shared walls?

- Is the ratio of rentals/total units low enough? Fannie and Freddie loans require < 40% if I am remembering it correctly.

- Are there too many units owned by too few owners?  Lender may not loan if too few investors own most of the units.

- FHA(HUD) will not loan in an association where the association is not "FHA certified".

- Does the association board have something against landlords/rentals?  They may have a plan to vote to ban rentals soon.

If we are good landlords who only rent to excellent tenants, then most associations will not cause a ruckus and change the by-laws.     Where I live, all associations that have banned rentals have much lower resale values and suffered much more in the housing downturn with more foreclosures and abandoned units than associations where they allowed a certain number of rentals.      Smart associations will understand that rentals do not drag down property values and in fact it helps values during a downturn.