Town house or detached home for investing?

therenoguy

Inspired Forum Member
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Hello all,

My question is: given a choice between a town house in a building(with a condo corp of course), and a single family detached(in the same market), which is typically the better long term investment?

My wife and I have owned a 3 bedroom condo in Cochrane since 2003, for revenue, we've never lived there. It was our first entry into real estate. It has been good to us, and is worth at least twice the price we paid. We are in for the long haul, so want to keep the money in dirt and doorknobs. If we sell, the equity in this condo would be used for the purchase of the house.

Recent events have come to light that have me looking to sell it and transfer the investment into a detached house:

1-The condo fees went from $140 to $220. In my houses, the tenant is responsible for snow removal and lawn mowing, and because I'm in the renovation business I can do maintenance at cost, so that $2640 hit to my cash flow hurts when there is no real benefit to me. This is because their assessment has shown then need $42K or so in the reserve fund and only have $35K.

2-The condo corp has to approve dogs. I always do hardwood or laminate and am pet friendly because it gives me a big advantage when looking for good tenants. They recently turned me down on an owner with a St. Bernard, which is intensely frustrating. As you all know, great tenants don't just fall out of the sky these days.

3-Not new, but condo boards are a giant P.I.T.A., as I'm sure you all know.

So what are your thoughts? Is it generally better to hold condos or single family detached?

Thanks for your input
Keith
 

Ahilan Thurairajah

Ahilan
REIN Member
As the asset value has doubled in your condo, I would re mortgage and get the capital out. Using this capital I would buy another investment property, ideally a detached house.

In any type of investment there will be challenges. Facing the challenge and resolving it is part of the game. Pet friendly or not is not your biggest concern. Focus on cash flow. If pets are not allowed, use that as an advantage to attract tenants who prefer not to have tenants. Even if there are not many tenants who prefer this, all you need is just one good tenant.

I would not sell the property unless the cash flow is way too low. But that’s just me. Everyone has different situations and has to assess their own risk vs reward.
 

Rickson9

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I own both condos and single family detached homes. I don't notice any big difference. I bought condos at $40k that grossed $700/month and I bought single family detached homes for $55k that grossed $850/month. The condo has a higher gross yield, but the single family detached has slightly less turnover so it seems to be a wash. They've both been good to me.
 

Matt Crowley

Senior Forum Member
REIN Member
I don't know if there is any hard and fast rule of condo vs. detached. The R&M component for a condo after condo fees should be significantly lower than for a detached home. That being said, if you are a renovator, then you probably know that most home fixes can be accomplished relatively cheaply. The ones that cannot be accomplished cheaply tend to be fairly easy to identify: roof, furnace, HW tank, appliances. As a handy person, I like fixing things up so the detached is a better option for me. I like being in control of the entire asset and having my own schedule for when things need to be repaired and when they can wait.

SFH as one unit has really low turnover which is nice. But a main floor suite only has more turnover and a basement suite has fairly regular turnover.

One difficulty with condos is that you really hit a rent ceiling fast. Even if you renovate a condo it is very difficult to achieve much better rents than other units in the building. I don't know why tenant psychology is like this but it is persistently the case. With a SFH, you can make upgrades and expect either a higher rent or a better demographic with less turnover. (I typically choose the latter)
 

Thomas Beyer

Senior Forum Member
REIN Member
In simple terms, and on average, condos are the worst investment, in terms of yield and equity upside, but they can be by far the easiest. In fact the asset I own the longest now are two condos, one in Edmonton ( bought in 1998, 18 years ago, refinanced twice) and in Kelowna ( 2003 or so, 13 years ago, refinanced once). I do basically nothing, except write the odd cheque for new carpets or appliances and sending three pieces of annual paper to my tax accountant ( one from the rental management firm, one from the bank and one from the city for their property taxes). Every five years I decide to extend the mortgage at what terms for five more years, or sell it, or increase mortgage.True passive income. The four hour work year. Great yield per hour !

Then, up the land per unit value chain:
THs are a bit better.
Then SF homes.
Then apartment buildings.
Then MHPs or commercial.

Generally what goes up is land values as the physical structure deteriorates. As such I love MHPs or acreages. Acreages rarely cash flow though due to high price.

Commercial or MF work very well but require more cash usually and a bit more knowledge as one mistake is easily 6 digits. But you get over the debt-wall many SG home folks face as essentially the asset qualifies for a mortgage and not the operator. As such you can buy as many as you want, or a second one after a five year refi in many instances.

If in doubt, buy the asset with more land per $ invested.
 
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RE123RE

Inspired Forum Member
Registered
I always do hardwood or laminate and am pet friendly because it gives me a big advantage when looking for good tenants.
Hi,
That's a very good and interesting point. many landlords say no to pets. Thanks
Regarding your question. I sense some confusion which is normal as you successfully grow your business, and I will try to help:
Do you have a job?
If you do, total ROI may be more important than cash flow (or CAP). and this affects your property type decision.
Also, consider to refinance instead of selling. what's better - zero tax on equity take out while continuing to pay down the principal monthly after re-fi, OR selling paying tax and Not continuing to benefit from principal reductions (- a point people forget even with zero cash flow).
Thanks
 

Matt Crowley

Senior Forum Member
REIN Member
Solid floors are great and are a very hot item right now on IAQ (indoor air quality). I was at a builder's conference this week and the stat they were providing is that a carpet will actually absorb more air pollutants than a solid-surface floor when it is undisturbed. The problem with carpet is that people walk on it. Once you factor that in, to have equally clean air quality you would need to vacuum every square metre of a carpet for 1/2 hour twice a week with a HEPA approved vacuum.
 

therenoguy

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Registered
I like being in control of the entire asset and having my own schedule for when things need to be repaired and when they can wait.

This is one of the reasons I'm considering selling. The fees take a big chunk out of my cash flow and i personally get ZERO benefit from condo fees.
 

therenoguy

Inspired Forum Member
Registered
In simple terms, and on average, condos are the worst investment, in terms of yield and equity upside, but they can be by far the easiest.

Thanks Thomas. I know you've done it all, so your words have weight. I currently self manage anyway, and I can do my own upkeep, and I'm happy to do so, so simplicity isn't my number one concern.
 

therenoguy

Inspired Forum Member
Registered
The key is doing the math for cash flow, selling costs, lost opportunity cost if you are spending your time taking care of a SFH, etc.

Again, looking after maintenance is not a problem for me like it is for many. So the opportunity loss is slight, if any. And if SFH is a better overall investment, I'm happy do do a roof or replace a hot water tank every decade or so.
 

therenoguy

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Registered
If you do, total ROI may be more important than cash flow (or CAP). and this affects your property type decision.

I do have a job, as does my wife. I look at the overall investment, so I'm considering uptick in price(we have already done a re-fi) as well as cash flow. I never look at one in isolation.
 

Thomas Beyer

Senior Forum Member
REIN Member
ed usually
and I can do my own upkeep, and I'm happy to do so, so simplicity isn't my number one concern.
Fair enough.

Tally the $s/h you make. If you want to grow a real estate portfolio - and I am not saying you should but if - you need to find more deals and need more money, usually via JV partners. Spend more time there, and less on renos, if this is the goal.
 

Matt Crowley

Senior Forum Member
REIN Member
This is one of the reasons I'm considering selling. The fees take a big chunk out of my cash flow and i personally get ZERO benefit from condo fees.

Yes, and I like to think I get better value for money than I would with a condo board.

Part of the challenge I have is that I like fixing things so to Thomas' point above, I need to pay attention to how much time I spend on renovations. That being said, renos are fun and I like working with my hands as I don't do any of that with my day job. Also, I don't want JV partners at the moment. I would rather own and control my own assets at the moment.
 

therenoguy

Inspired Forum Member
Registered
ed usually

Fair enough.

Tally the $s/h you make. If you want to grow a real estate portfolio - and I am not saying you should but if - you need to find more deals and need more money, usually via JV partners. Spend more time there, and less on renos, if this is the goal.

Again. Point taken. Nobody ever got wealthy by doing a roof or a hot water tank io their own property. There is power in leverage, and DIY and leverage are mutually exclusive. I understand that.

But that's a separate issue, and a separate topic. In the context of the comparison between a me owning a house, or condo, I make my statements to illustrate that I receive no value from condo fees, and in my case they only serve to lower cash flow.

Onward.
 

BradEarthWide

New Forum Member
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A quick opinion after reading this thread, you will see better performance from a SFH because your posts are already leaning that way. You will do better upkeep and stay on top on the property to your expected level, not a board's level, and no more board getting in your investments way.
 

CraigSmith

Inspired Forum Member
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I own both single family with up/down suites and condos and my experience has been that a lot more money goes into fixing up a single family home over time. Like Thomas said above I find the condo's easy to manage and rent out. The single family homes have more turnover like Matt mentioned which eats into the cashflow as well.

When looking at the cost of condo fee's you have to consider what they cover. $220 per month sounds reasonable to me for a condo. Some condo fees cover water and sewer and gas, reserve fund contributions for future repairs, landscaping and snow removal, insurance, management etc. On a single family home you will be paying more for insurance as well as these other items and you will still have to contribute or save towards a reserve fund of your own for future repairs. ie: roof.

That being said, I love single family homes and doing reno's as well so I'm not trying to discourage you from going that route. There is nothing like owning your own land and the chance of higher appreciation is greater. Just wanted to share my personal experience in which I found single family homes to be more work and money (depending on the condition of course). Therefore, I second the motion from the above comments to try and keep the condo and refinance to buy a second property.

Good luck!
 

RE123RE

Inspired Forum Member
Registered
I do have a job, as does my wife. I look at the overall investment, so I'm considering uptick in price(we have already done a re-fi) as well as cash flow. I never look at one in isolation.
Hi,
In this case reduce your cash flow to zero (yes, reduce). meaning maximize your ROI by looking for more expensive per unit but headache free properties (headache free in RE is a relative term) with higher expected appreciation.
In other words, it is often a trade off - when cash flow is higher it often means more work, more problems to solve.
If this is still confusing, then last 'in other words': in other words, when you maximize TOTAL ROI (which is the best thing by the way compared to people without a job who must maximize cash flow), then you necessarily do not maximize your cash flow.
Thanks
 

SokalskiT

New Forum Member
Registered
I personally prefer houses vs townhouse, I do own both though and do well with them. I personally do not suite my houses as I self manage and want to make it as hands free as possible. This also allows a better demographic and class of tenant.

1. I control the costs and direct my money where I see fit, vs condo board deciding that

2. Lot more rental stock of townhouses/condos vs houses. I find in town homes the competition to be greater, thus I must really be aware of my comparables.

3. Better tenant in houses vs town homes just because of price. People who are paying 1800 month are a different class than those paying 1100.
 
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