Apartment vs. Town House in West Edmonton

[cathydeston]

Hi,

We are looking to purchase a rental property in West Edmonton. We looked at listings for condos/carriage homes which are older but have more space, some with a yard and finished basement and newer modern apartments in low rises. The condo fees seem similar for both options although the purchase price is a bit higher for the newer apartments. The apartments would be lower maintenance. Do you have advice for either type of property as an investment?

 

[Thomas Beyer]

What is better: fish, steak or pasta ?



There is no right or wrong answer here. Each asset type has its advantages or disadvantages.



A townhouse (compared to a condo) is more expensive and has a yard usually, but also commands slightly more rent, lower condo fees and has lower utility costs as tenant pays for them.



You need to give us a bit more information, such as price, condo fees, rents, utilities.



[btw: I am an omnivore]

 

[cathydeston]

Hi,

The price I'm looking at is around 250K and the utilities fees are $250-300/mo. There are a few older town houses in the West end available around that price. I'm more used to a town home to rent out. But this time, I'm leaning towards the apartments since I can get a newer one for around the same price and there is less maintenance. However, I'm not sure which is a better type of investment for long term, ease of securing renters, and ROI. There are so many variables to factor in. Would appreciate some opinions (ie advantages/disadvantages) so can narrow search to a particular type of dwelling. Many thanks!

 

[Thomas Beyer]

As stated, one can make money in either option, or lose money if poorly managed, and there is no clear winner. A townhouse with more land has more appreciation potential, but indeed it may require more upkeep due to age.



Since you pay for condo fees (that usually include utilities in Alberta like sewer, garbage, cold water, hot water and heating) in an apartment you will likely have lower cash-flow if the rent is the same. Is the rent the same ? A townhouse has very low condo fees, and the tenant usually pays for water, gas and electricity. In a condo the tenant pays for electricity only, and the landlord pays for property taxes and most utilities.



We own a 120 suiter in the west-end (95 Ave @ 181 St) and we rent 1BR's in the mid $900's. So I would think a new 2BR would rent for $1100 to $1200, maybe more if large, and a 3BR for $1350 or so. I would expect THs to be similar.



To repeat, what is better: fish, steak or pasta ?



[If you do not know the answer, try all three - then decide !]



Personally, assuming old TH and new condo are both $250,000 and rent for $1200, I'd buy the TH as it has more land and tenants pay utilities. But there are many more variables like location, road noise, distance to WEM, distance to future west LRT, deferred maintenance in common areas and inside, view, size, reserve fund status, curb appeal .. that may make this view incorrect.

 

[JimWhitelaw]

A lot of the "which is better" question will come down to the specifics of the particular building or project your unit is in. With either type, there's going to be a number of factors that are either out of your control, or difficult for you to manage and change. Newer isn't necessarily better as many new projects are poorly built and that won't show up for a number of years, but will be painful to owners when it does.



Some things to think about:

Is the condo board well-run? Is it landlord/tenant friendly or hostile to non-occupant owners? Are the building maintenance and financials up do date? Is the reserve fund adequate? What is the "curb appeal of the property overall? Are common areas well-maintained or rundown? What is the general tenant profile in like a particular property? Is it in line with others in the same area? How does the unit you're considering compare to others in the property?

 

[cathydeston]

Thanks to both for your valuable and sage advice. I feel better informed and will look at both types of property before I make my decision.

Thomas, I like your "fish, steak or pasta" analogy. I guess there is room for each given the right conditions.

Cheers,

 

[bizaro86]

[quote user=ThomasBeyer]Personally, assuming old TH and new condo are both $250,000 and rent for $1200, I'd buy the TH as it has more land and tenants pay utilities. But there are many more variables like location, road noise, distance to WEM, distance to future west LRT, deferred maintenance in common areas and inside, view, size, reserve fund status, curb appeal .. that may make this view incorrect



Assuming they're both 250k and rent for 1200, I think you'd be unwise to buy either of them. a 5.76% GROSS rental yield is not very good. I know REIN has backed away from the 10% rule, but the 5-6% rule is still a ways off, I'd imagine. That has to be a 3 point something cap rate.



Regards,



Michael

 

[Lucas]

Hi Cathy,



I am an investment realtor in Edmonton and have sold numerous TH's and condo's to REIN members in the past. As the other posters mentioned, both are good for different reasons and it depends on what you prefer as an investor.



Both are relatively low maintenance in general. With older townhomes and carriage homes you have a heating system to maintain.



With the newer apartment style, the maintenance of the heating system and the fuel consumed are paid for in the condo fees. In the older TH and carriage units, the cost of the fuel consumed by the heating system can be passed onto the tenant.



I would suggest an older 3 bdr TH in a decent complex. You will pay less than 250k and you will get comparable and possibly higher rents (depending on the complex and unit). As well, you have the option of passing the gas bill onto the tenant.



As Jim mentioned the most important factor in buying condos is the proper review of the full and current condo documents.



Good luck,

 

[Thomas Beyer]

[quote user=bizaro86]Assuming they're both 250k and rent for 1200, I think you'd be unwise to buy either of them.
fair enough .. it is a little skinny.



But costs might be low, if self managed (no management fee) and no to low condo fees, and no utilities, just property taxes.



So rent might be $1200 .. minus $160 taxes & insurance .. $12,500 a year or so, divided by $250,000 is a 5% CAP .. not wow .. but it is Edmonton. You will be higher in smaller towns.



But yes, adding other expenses like vacancies, R&M and management fees and it will be sub 4% CAP rate ! Not a great investment in either case.

 

[Lucas]

I cannot think of a decent complex that has no condo fees...or even low condo fees...Expect a minimum of $160/month and that would be the very minimum.



A well run complex should contribute a portion of your fees to their reserve fund and depending on the size of the complex, there should be a large sum saved for maintenance and improvement purposes.



The other option is a suited half-duplex...you don't have any fixed condo fees but you are responsible for all the maintenance so their is a real cost there. Also your vacancy allowance should increase. I've seen suited half-duplexes sell for in the mid 250's in decent areas (i.e. Kensington)...I've have yet to see a legally suited half-duplex though so increased risk.



Yields are much higher in smaller towns but there is obviously much less product to choose from.

 

[Thomas Beyer]

[quote user=Lucas]

Yields are much higher in smaller towns but there is obviously much less product to choose from.
and the risks (of prolonged vacancies, lower rent and lower sale price) are far higher too !

 

[Lucas]

It depends on the town and the size of the town...I had a couple rentals in Spruce Grove and the rents weren't any lower and it was easier to find quality tenants than the properties I have in Edmonton.



Also, I have a house in the small town I'm from (service area of 1500 ppl and about 1 hr west of Edmonton) and I have NEVER had a full vacant month in 5 years of owning it.



In terms of lower rent that is disputable as well...I paid 130k for the house and I rent it for $1100/month. Lower rent yes but far far lower price...



The major downside with smaller towns is finding a manager.



Lucas

 

[cathydeston]

Hi there,

Just to give an update. I have been looking at both types of properties (older town homes and newer apartments). In the areas I'm looking at, for the same purchase price, the rent would definitely exceed $1200/mo currently. However, I'm leaning towards the newer apartments just because they are ready to move in and no upfront costs nor repairs needed. Hopefully resale value is there because of the location in the city. I'm doing a bit more research and calling around before I make the jump.

 

[Rickson9]

$1200 per month rent on a $250,000 property is pretty skimpy isn't it?

 

[cathydeston]

You probably can get at least 1200/mo for properties going around the 200k mark in W and SW.

 

[Lucas]

It is very skimpy...especially considering the condo fees on an apartment style unit would be in the 220 to 300/month range.



Older 3 bdr TH in decent complexes are still selling in the 180 to 190k range and they get 1200/month. Also, the fees are only in the 160 to 200/month range (because the tenant pays the heat bill).



I like the apartment condos when they are in the 180 to 200k range because they are very easy to maintain and manage and they rent very easy. That said, an older TH in good shape in a decent area is all of the above too.