Market Conditions in 06902>Question Details

matrix607, Home Buyer in 06902

Townhouse vs Condo: Which is better for rental income?

Asked by matrix607, 06902 Tue May 17, 2011

I am looking to purchase a property that I will live in for ~3 years and then turn into an investment property. My main concerns are about the ability to easily get tenants and the amount of rent vs cost.

Thanks!

Help the community by answering this question:

Answers

9
I think it's all boils down to what actual costs(expenses) are associated with the property. Condos are usually restricted heavier than the townhouses with their own HOA(Home Owner's Asso) and maintenance fees and etc.. If you could get higher rental payments if the Condo is in a "hot area" than having those extra fees and dues could be justifiable. On the other side of the hand, owning a Townhouse may require you to do your own maintenance to keep up the appearance of the property.

Once again, it usually boils down to Income vs. Expenses to bottom line your ROI.

One thing for sure, you're in a great market to acquire a property so go ahead, do your home work with one of your local agent then build your Real Estate Portfolio!

Albert
1 vote Thank Flag Link Tue May 17, 2011
Good morning. You wrote "My main concerns are about the ability to easily get tenants and the amount of rent vs cost."
Lot's of info has been shared below and should be considered. I have been working with buyers who have this specific question. When looking, your agent and you should do some due diligence about the complex first, before presenting an offer. Some things need to be considered. Just so you know, many listing agents will not have this information when asked. If paying cash, at first glance these may not be important, but if applying for a mortgage, they become essential. Also, they are important for future resale. Condo complexes need to be compliant with Fannie Mae guidelines for a mortgage.
Complex needs:
* 50% or more owner occupied
* No owner with over 10% ownership
* Less than 25% commercial space
* 10% or more of the annual budget goes into reserves
* Less than 15% of the units past due on common charges
* No litigation against the association, with the exception of a
slip and fall that is being covered by insurance.
* Not new = 90%+ pre-sale and turned over to the unit owners for
at least 1 year
* Adequate insurance coverage on the master policy

Ask your agent to find out the name of the management company since they will be able to answer these questions before time and monies are spent.
Your agent should gather comps for you concerning going rents and days on market for both ranch and townhouse style. Once you receive all this information, estimate expenses, you will be able to calculate what your NOI is.
One thing to consider as well in doing your numbers is vacancy time. You should at least expect 1 month vacant for turn around time and any repairs that may need to be done before next tenant occupies.

In 3 years time, no one knows what the rental market will be like, but based on present market conditions and future expectations, rentals are going to be in demand.
Also, check to see if any complexes are considering any restrictions with respect to renting units.
So with all info below, which I tried not to repeat, you should be well on your way to making the best informed decision for you. There are many factors to consider. If you have any thoughts feel free to share them with me. One more thing, check to see if complex has had any recent renovations and whether they anticipate any future assessments.

Good Luck,

Candace Lipira
Keller Williams Platinum Properties
203-856-8501
candylipira@optonline.net
CT Lic
Web Reference: http://candylipirahomes.com
0 votes Thank Flag Link Wed May 18, 2011
Hello Matrix607,

Seems like you've already received plenty of advice and good information from professionals. I think townhouse vs condo is more of a style difference. A townhouse style can be a condo and a condo can be a townhouse style. If you're talking co-op, now that is definitely not comparing apples to apples and if that is the question, I believe anyone will advise that condo is the way to go.

It's all about the bottom line. Income vs expenses is really the important factor here.

One more thing....you may want to also consider Norwalk, which is only 7 miles north of Stamford. You will get more for your $ and there are many complexes to choose from.

Kind regards.
Linda
0 votes Thank Flag Link Wed May 18, 2011
Glad to see a question that I can answer! And I also live in 06902! The main answer comes from the complex you are thinking about purchasing. In Fairfield County as we have several condos that have financial problems and many that do not.
It is best for you to have an agent (I assume you are using one) that knows the market and also the units that have been foreclosed (or are pre-foreclosure) as well as what percentage are rental units. Of course location is key and Stamford is a highly desirable rental market with not only Fairfield County businesses, but proximity to New York City.
If you do not have an agent currently, feel free to contact me with specific questions.
0 votes Thank Flag Link Wed May 18, 2011
As Ellen tried to clarify below - condo and coop are forms of ownership.....a townhome is a style.

You can buy a townhome that is a condo.
You can buy a townhome that is a coop.
You can buy an apartment style, 1 floor unit in a highrise, or a garden apt. style unit that is either a condo or a coop!

Ok lesson is over!
:)

Make sure you read any community (HOA) bylaws before buying any type of property, as there might be restrictions or rules regarding renting the home out.

Good luck!
0 votes Thank Flag Link Tue May 17, 2011
Wow Matrix607, you have a lot of work cut out for you, that's for sure.

However, remember what I said in my first answer, "It all boils down to Income vs Expenses" If you're in a "Hot area" your expense and income should be higher than those "Not-so-hot right now" areas.

Standard formula for figuring out your Cash on Cash ROI is:

Monthly Rent Income - (Mortgage Payment+Interest+Tax+Insurance+Monthly Expenses) * 10.5 / Expenses at Closing (Closing Cost + Down Payment + Repairs)

And this should work for you whether you're in Stamford, Miami, or Memphis, TN!

Good luck!

P.S. Google "Property Management Company" in the area of your interest to gather their knowledge. I, myself work for a property management company and often times, property managers have better knowledge of rental market and should be knowledgeable of Federal and Local Laws & Regulations regarding Fair and Affordable Housing and many others. Last but not least, they should be able to recommend a good real estate agent who could work for you with those recommendations from managers. Good luck
0 votes Thank Flag Link Tue May 17, 2011
Before getting to your question (answered in last paragraph) I ask you to please consider the following, buying a condo or a townhouse depends on your lifestyle and that of the future tenant you aim to attract.

**First, a few commonalities: you OWN your property, you will be required to pay a monthly HOA (home owners association) fee or common charges, you will share at least one wall with your neighboring unit, (In a condo you might up sharing ceiling, floor, and outer walls!), the association is primarily responsible for grounds upkeep, snow removal, repairs/replacements such as decks and roof. You abide by the associations by-laws.

**Second, a few differences: in a townhouse a financial institution may considered you the owner of a single-family home. In a condo, you are a condo owner. In a townhouse you own the little bit of lawn in front, back and side (if end unit) of your townhouse. So, break out the miracle grow, a few seeds and watch your tulips grow. In a condo, you’ll have to make do with houseplants on your balcony, if you have one. Have car? A townhouse may come w/ a deeded garage while a condo may have a reserved parking spot at best.

**Third, the by-laws: The association by-laws will state the rules for renting the condo unit/townhouse. Some by-laws state the unit must be owner occupied at least every two years. Other by-laws don’t have any limitations. Most have a move-in/move-out fee that range from $50-$250. This fee pays for the administrative processing.

Regardless of what you buy here’s a word of caution. Lending institutions many times do not favor buildings/complexes where it is predominantly tenant occupied.

Rent a property knowing you want to cover your debt service: mortgage, taxes, insurance, HOA fees, reserve fund, realtor fees. Then look around at comparable rental units, figure out the absorption rate, and then advertise it. The rental market in some areas of Stamford is looking healthy. Important, make sure you do a background check of your prospective tenant. MOST IMPORTANT, adhere to Federal Fair Housing Laws.
0 votes Thank Flag Link Tue May 17, 2011
Clarification question. Are you are thinking about a townhouse that is part of a condominium association versus a garden style apartment in a high rise that is also part of a condominium association? Think the agent who initially answered has a different type of market. In Fairfield county we seem to lump everything either under "condo" or "coop" - and townhouse usually refers to the style of condo.

A couple of things to consider. Think about what you want to live in for the next three years and then ask yourself that if you were a renter what about it would appeal?. Location, condition, amenities like parking, close to the train, close to a park, a pool and clubhouse are things that renters are interested in. And after our winter a garage, or reserved garage parking is a huge plus.

When I am evaluating rental properties for landlords I try to compare apples to apples. A townhouse style in a location that provides ease of shopping, commuting, parking tends to get a premium over a similar sized condo in large building with people living overhead and underfoot.

And I do the same thing for buyers so that they get a sense of true value at the moment not only in terms of purchase, but also in terms of potential rental income. Right now our rental market is cooking...however that may not be the case in 4 years.

If you are thinking about a condo Stamford, please make sure you are aware of what is starting to happen in the city that may affect what you ultimately purchase. Your agent should be guiding you and providing you with relevant data. If you need more information on this please let me know.
0 votes Thank Flag Link Tue May 17, 2011
Hello Matrix,
I don't think that the major emphasis should be condo vs. town house when selecting a home that will later be used for rental income. Location should be the primary focus. The downtown area of Stamford is sought-after and the rental market is currently doing very well there. It's a great place for investment properties as well as a fun place to live.
Finding a unit in good condition whether it be a town house or condo would be your best bet.
Do pay attention to common charges as you are still responsible for that payment as a landlord.
Please, feel free to contact me with any questions as I know the Stamford market well.
Hope you find this helpful.

Laura Feghali
Prudential Connecticut Realty
203-536-4802
laurafeghali@prudentialct.com
0 votes Thank Flag Link Tue May 17, 2011
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer