Have you ever noticed how
the terms "town house" and "condo" are sometimes used
interchangeably? This is most likely because both types of housing structures
may be governed by homeowners associations. That, however, is where the
similarity between the two ends. Comparing condos with town houses is akin to
comparing apples and oranges.
When most consumers hear
the word "condo," they picture a unit in a larger structure. For the
most part, this is accurate. The problem, though, is that
"condominium" is actually a form of ownership, not a type of
structure. There are three major types of homeownership:
Condominium
Fee simple
Cooperative
Condominium owners own
the interiors of their units and share ownership of the common areas.
"Town house," on the other hand, describes a type of structure – one
that is typically two or more stories and attached to one or more other town
houses, each with its own front door.
In some parts of the
country, town houses may be owned as condominiums or the homeowner may own it
fee simple – in which she owns the building and/or land in its entirety.
As you can see, the
questions to ask if you are thinking of purchasing a town house will be quite
different than those you'll consider when purchasing a condominium unit. Let's
take a look at three of the most significant factors you should consider.
1. Homeowners Association
While not all town houses
are governed by homeowners associations, many are. This fact opens up a can of
worms when considering whether to purchase. HOA fees can be quite expensive, so
you'll need to take them into account when determining how much you can afford
to spend on housing every month.
During the purchase
process, you'll be given a pile of HOA-related paperwork, and you'll need to
read every word of every page – or have your attorney do so. You'll want to
know if the HOA is solvent, how often it levies assessments and if there is
pending litigation, among other issues.
Finally, you'll need to
consider if you want to live in an area managed by an association. Some people
prefer the structure that an HOA affords while others find that structure too
confining.
2. Getting Financed
Purchasing a fee simple
town house is identical to purchasing a detached, single-family dwelling as far
as lenders are concerned. If the town house is owned as a condominium, lending
becomes a bit trickier.
Owner-occupied homes tend
to be maintained better than those used strictly as rentals. Lenders understand
this and make it a part of the lending decision. Find out the ratio of
owner-occupied to tenant-occupied units before making an offer. If it
exceeds 30
percent, you may not be able to
get a mortgage for it.
Determine the percentage
of homeowners that are delinquent in paying their HOA dues. This is critical
information because banks typically won't lend to anyone wishing to purchase a
town house where the HOA delinquency rate is more than 15 percent.
3. Exit Strategy
If you're using the
purchase of a town house as a springboard to the future purchase of a detached
home, you'll want to plan an exit strategy. Yes, it seems silly to consider
moving before the ink is dry on the purchase agreement, but it's necessary to
achieve your future goals.
Building equity in a home
takes time and, depending on market conditions and the type of home you own, it
may take longer with a town house. All things being equal (location, proximity
to good schools, etc.) a single-family home will appreciate in value quicker
than a town house. In reality, the opportunity to build equity in the first few
years of ownership of any type of home is minimal unless you pay an enormous
down payment.
Ask your real estate
agent to give you statistics on town house sales in your area over the past
year. Check the average days on the market. The longer a home remains on the
market, the less money it eventually brings. Should you decide to purchase, ask
your agent to keep you updated on the town house market in the future. Most
agents are happy to do this.
Keep in mind that even
when your equity begins building, your property taxes may rise. Property
reassessments can take a bite out of how much equity you're able to build.
Living in a town house is
ideal for those who want the benefit of homeownership at a cheaper price and
without some of the headaches that come with a detached home. Choose your town
house wisely and with an eye toward future market value.
Your Local San Diego Real Estate Expert,
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