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Townhouse vs. Duplex: Which is a Better Investment?

May 26, 2020
Property Analysis

(This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)

Townhouse vs. Duplex

This post teaches you whether you should invest in a townhouse or a duplex.

Subtle hint: Invest in duplexes, not townhouses.

It also walks you through the differences between a duplex and townhouse and the pros and cons of each.

Let's get started.

What is a duplex?

  • A duplex is a house consisting of two units with two separate entrances.
  • In most cases, a duplex is laid out in a side-by-side arrangement.
  • Duplexes are stand-alone-properties, much like single-family homes.
  • Duplexes give investors the ability to house-hack. House hacking means a landlord can live in one unit and rent out the other, which has many advantages.
A beige duplex with green trees in the backyard and a long driveway
Duplex

What is a townhouse?

  • A townhouse is a single-family home that shares one or more walls with other independently-owned units.
  • Townhomes are often rows of uniform homes that are two stories or taller.
  • Residents own their interior and exterior walls, lawn, and roof, as well as the insurance.
  • Maintenance costs are determined by the community's HOA.
10 modern, different colored townhouses in a row with lights on
Townhouses

Which is a better investment?

Let's walk through the pros and cons of each property type to determine which is a better real estate investment.

Pros of investing in duplexes

  • House hacking - House hacking means that you live in one unit and rent out the unit next-door for cash flow. With this method, you get to live in your investment property while also keeping an eye on it at all times. House hacking is the perfect scenario for a first-time investor wanting to know how to learn real estate investing.
  • Keep watch on your property 24/7 - It's much easier to keep an eye on your property and tenant when your unit is connected to theirs. This is a great way to get started after you ideally find a cheap duplex for sale.
  • You might end up with a better tenant - You will probably rule out most bad tenants that pay late and party into the night because they know they'll be living next to their landlord. You will also be less likely to encounter a hold over tenant. A holdover tenancy is when a tenant continues to live in a property after his or her lease has expired, without the landlord’s explicit permission.
  • Mortgage advantages - Mortgage companies tend to give better interest rates to people buying a property they will also live in. They also consider a duplex as one property which can help you get a better rate as well. Many lenders will even allow you to include part of the potential rent into your income when qualifying for a mortgage.
  • Low cost - Duplexes for sale are generally located in affordable areas primed for growth. This makes them an excellent investment for a first-time real estate investor.
  • Rent to a family member - You can rent the additional unit to a family member who needs more supervision, instead of them moving into a nursing home. This sort of living situation works well for many families. You have your beloved family members close by, they maintain their independence, and everyone has some privacy.

Cons of investing in duplexes

  • Living right next to tenants - House hacking a duplex means that you’re the landlord, but you’re also roommates with your tenant. You want to be sure and set boundaries so your tenant doesn’t think it's okay to knock on your door at 10 at night because his/her stove isn't working.
  • Evicting a tenant is a pain - When you have to evict a tenant, living next to them can make the process more uncomfortable. Just imagine serving your tenant a notice to evict but then running into them daily.

Pros of investing in townhouses

  • Plenty of living space - Townhouses tend to be very large in size, much larger than condos. Townhouses usually stretch to 2-3 stories.
  • Privacy - Townhouse residents have plenty of privacy, close to as much privacy as a single-family home or a duplex. This is because they're detached units.
  • Cost-effective - Because townhouses have shared walls & common areas (sometimes), they could be considered cost-effective.

Cons of investing in townhouses

  • Lack of appreciation - Townhomes are notoriously known to appreciate less than other property types. While some investors view appreciation as a "nice to have", it's a crucial factor when considering a potential investment.
  • HOA fees - Though you will be paying lower HOA fees than condo owners, you will still be paying HOA fees. These fees are generally around $300/month.
  • Maintenance requirements - Townhomes have individual maintenance requirements. For example, you may be responsible for your own roof. These maintenance requirements are different from condo's, in which the HOA takes care of the exterior maintenance issues.
Townhouse (left) vs. Duplex (right)
Townhouse (left) vs. Duplex (right)

Which is a better investment?

There are plenty of reasons why investing in a duplex will work out better than investing in a townhouse.

Remember: It's not that townhomes are inherently bad investments. You could invest in townhouses and do perfectly well for yourself.

But, you shouldn't be thinking about whether a property type is a good investment or not.

Instead, you want to think about how well a certain property type will do in comparison to other property types.

Townhouses are fine. Duplexes are much better.

Buy a duplex with Lofty AI

At Lofty AI, we show you cash-flowing duplexes located in neighborhoods primed for rapid appreciation, in just seconds.

Just toggle on the “2+ units” filter, and you’ll immediately see duplexes that are cash-flowing, undervalued, and located in growth neighborhoods in over 30 markets. This makes finding properties out of state extremely simple.

Lofty AI platform showing duplexes for sale in Denver
Lofty AI platform with the duplex filter turned on

You can even find motivated sellers that are desperate to sell their duplex. When you come across a motivated seller, that lets you make a low-ball offer that is likely to be accepted.

Lofty AI isn't the only real estate investing software out there to find duplexes. But, it's definitely the quickest and most accurate.

If you're interested in learning more, you can request access by clicking the button below.

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