If you’re considering buying your first home, now is a great time to buy, especially if you’re in a financially stable enough position to support it. Prices are low and eventually they’ll come back up, which should help you make a nice profit when it comes time to sell.
But which is the better investment – a house or a townhome?
There are definitely benefits to buying a house. Historically, houses have appreciated better than townhomes. You can also find some fixer-uppers for a great deal and if you’re handy with the tools, you can clean it up nicely and then sell it later for a hefty profit.
A house will almost always return a higher profit because land and lot size typically bring in the greatest value. Townhomes aren’t built on large lots so unless they are kept well-maintained and updated regularly, in 30 years, they aren’t likely to be worth as much as a house on a large lot where the homeowner can make any upgrades they want.
Many people feel that townhomes are better for renting out than houses, because they cost less to maintain, but keep in mind that townhomes also often have monthly fees associated with maintenance, snow removal, lawn care, sanitation, water/sewer, and hazard insurance on the property. If you have plans for renting out your townhome, you should also make sure that the association management allows it. Some properties don’t allow it all and some have very strict restrictions.
Another drawback to townhome ownership is that insurance costs can rise drastically, fees can change if property management changes and if the property needs repair, for example the roofs, you and everyone else in the community will have to pay a large assessment to fix it. The board determines these fees and they are costs that you can’t plan for.
Don’t completely toss out the idea of a townhome just yet though. Your first home isn’t likely going to be the home you live in for the rest of your life. Townhomes are usually more affordable than a house and you will see equity in ownership, which can later be used to help you purchase an even nicer home down the road. Townhomes are often easy to sell because they usually have many amenities and require less work for the tenant, but the ease of resale also depends greatly on the location.
Whether you decide to buy a house or townhome, there are other factors that may affect the re-sell value for both types of property.
- Are there plans for new development within the 5-7 miles of the home?
- Is the home in a nice area?
- Is the home near schools or are there plans for new schools?
- Are there airports or railroad tracks?
- Is there an HOA? (HOAs keep neighborhoods nice, but people like freedom)
With real estate prices still dropping fast in many areas, professionals are saying that the days of fixing and flipping houses are over. Fix-and-flip investments still work, but are better suited to someone with experience or who is willing to learn everything there is to know in that industry. Instead, you should look at your real estate purchase as a long-term investment and buy the home that makes you happy, because that’s what’s most important.
Have You Considered Renting?
If you aren’t ready to purchase a home just yet, there’s absolutely nothing wrong with renting.
Renting provides financial flexibility and stability. If you run into financial trouble you can make quick changes to your living expenses and you’ll never have to worry about paying for unexpected repairs. It’s the landlord’s job to take care of maintenance so that you can use your time more wisely.
If you don’t plan on living in the same place for a lengthy amount of time, say for example your career interests change; it’s also much easier to pick up and go.
While renting doesn’t offer the potential reward of selling a home for profit, it also doesn’t result in the risk of loss you might take if you need move and the market isn’t working in your favor.
Alex Juel is a freelance writer and online marketing specialist working with Planned Property Management, a property management company providing apartments in Chicago in 28 buildings throughout three neighborhoods.