Condo vs. townhouse: What's the difference for investors?

Whether you're a seasoned real estate investor with a growing portfolio or a first-timer, you may be curious about the world outside of single-family homes. Short of buying an entire apartment building, which is highly capital and management-intensive, there are two popular, single-unit options: condos and townhouses.

‍When evaluating rental property investments, understanding the difference is crucial for making informed decisions about your portfolio. While both can generate rental income, they differ significantly in ownership structure, maintenance responsibilities, and insurance requirements – all factors that significantly impact your bottom line.

Understanding the core differences

The fundamental distinction between condos and townhouses lies in what you actually own and maintain. A condominium represents ownership of the interior space of your unit, with shared ownership of common areas, building exterior, and land. The homeowners association (HOA) maintains everything outside your unit's walls.

A townhouse, by contrast, typically means you own both the structure and the land beneath it – from the foundation to the roof. While townhouse communities often have HOAs, you're generally responsible for your unit's exterior maintenance, including the roof, siding, and any attached yard space.

This ownership difference fundamentally shapes your insurance needs, maintenance obligations, and investment strategy. For landlords, it also determines your liability exposure and the types of coverage required to adequately protect your investment.

Insurance requirements: A critical distinction for investors

Condo insurance for rental properties

When you own a rental condo, your landlord insurance coverage needs to work alongside the HOA's master policy. The association's insurance typically covers the building's structure, common areas, and shared amenities, while your policy protects your ownership interests, liability, and rental operations.

Your condo landlord insurance should include:

• Coverage for improvements and betterments you've made to the unit
• Landlord liability coverage for tenant injuries or property damage claims
• Loss of rent coverage if the unit becomes uninhabitable
• Personal property coverage if you provide furnishings

Since the HOA's master policy handles structural coverage, condo insurance premiums are generally lower than townhouse policies. However, you need to understand exactly what the master policy covers; some associations use "bare walls-in" coverage that leaves more responsibility to individual owners.

Townhouse insurance for rental properties

Townhouse landlord insurance is more comprehensive because you're insuring the entire structure. This resembles insurance for single-family homes but with some unique considerations for attached units.

Your townhouse landlord insurance coverage must include:

• Full dwelling coverage from foundation to roof
• Liability protection for your property and any attached outdoor spaces
• Coverage for detached structures like garages or sheds
• Loss of rent protection
• Protection against damage from neighboring units (important for attached townhouses)

Because you're insuring more property, townhouse insurance typically costs 20-40% more than comparable condo coverage. However, you also have more control over maintenance and can potentially reduce premiums through property improvements and security features.

It is worth noting that for townhouses, roofs can often fall in a grey area where sometimes the townhouse association covers a roof, and other times unit-owners are responsible. Landlord insurance companies will typically include roofs in a standard policy, but it's important to understand what associations cover before taking out a policy of your own.

‍

Maintenance and management considerations

Condo maintenance: Lower time commitment

For investors seeking minimal hands-on involvement, condos offer significant advantages. The HOA handles exterior maintenance, landscaping, common area upkeep, and often manages amenities like pools or fitness centers. Your maintenance responsibilities focus exclusively on the unit's interior.

This arrangement works well for out-of-state investors or those with multiple properties who need to minimize management time. However, you're also paying HOA fees, typically $200-500+ monthly, for these services, which directly impacts your cash flow.

One consideration: you're dependent on the HOA's maintenance standards. Deferred maintenance on the building exterior or common areas can affect your property value even if your unit is well-maintained.

Townhouse maintenance: Greater control, more responsibility

Townhouse ownership means you control all maintenance decisions for your property. You choose contractors, timing, and quality of work for everything from roof repairs to landscaping. This autonomy allows you to maintain your property to your standards and potentially reduce long-term costs through preventive maintenance.

However, this also means you're responsible for:

• Roof repairs and replacement (typically every 15-25 years)
• Exterior painting and siding maintenance
• HVAC system maintenance for the entire structure
• Yard and landscaping upkeep
• Driveway and walkway repairs

These responsibilities require either hands-on involvement or hiring property management services. Budget for higher ongoing maintenance costs compared to condos, though you avoid monthly HOA fees or pay significantly reduced fees for limited community amenities.

Most non-structural upgrades qualify for bonus depreciation, which can provide major tax relief in the year a property is purchased.

Financial considerations and cash flow

Condo investment costs

Beyond your mortgage, condo ownership includes mandatory HOA fees covering building insurance, exterior maintenance, and amenities. While these fees reduce your net rental income, they also mean predictable expenses with no surprise roof replacements or major exterior repairs.

According to IRS Publication 527, condo investors can deduct HOA fees as rental property expenses, along with mortgage interest, property taxes, and insurance. However, the fees themselves may not be optimal for your specific property's needs.

Your insurance costs will be lower than townhouses, but you have less control over the master policy's adequacy. Special assessments for major building repairs can also create unexpected cash demands.

Townhouse investment costs

Townhouses typically generate stronger cash flow potential when properly managed. Without monthly HOA fees (or with minimal fees for basic amenities), more rental income flows to your bottom line. However, you need to budget strategically for major repairs like roof replacements, HVAC systems, and exterior maintenance.

Insurance costs tend to run higher, but you're also protecting more property. According to the U.S. Census Bureau, townhouses often appreciate comparably to single-family homes, potentially offering stronger long-term value than condos.

The key is maintaining adequate reserves. Financial advisors typically recommend setting aside 1-2% of property value annually for maintenance and repairs—a practice that protects your investment and maintains property values.

Rental market appeal and tenant considerations

Condos often appeal to tenants seeking urban locations, amenities, and minimal maintenance responsibilities. The HOA-maintained lifestyle attracts young professionals, downsizing seniors, and tenants who prioritize convenience. However, HOA rental restrictions, which can include occupancy limits, pet policies, and guest rules, can limit your tenant pool.

Townhouses typically attract families and tenants seeking more space, privacy, and a "house-like" living experience. The additional square footage, multiple levels, and outdoor space command higher rents in many markets. You also have more flexibility in setting pet policies and house rules, expanding your potential tenant base.

Both property types can succeed as rentals, but understanding your target market's preferences helps optimize your investment strategy.

Legal and HOA considerations

Condo association rules

As a condo investor, you're bound by the HOA's governing documents. Many associations restrict rentals; some cap the percentage of rental units, require minimum lease terms, or mandate board approval for tenants. Before purchasing, review:

• Rental restrictions and approval processes
• Current percentage of rental vs. owner-occupied units (affects financing)
• HOA financial health and reserve funds
• Pending special assessments
• Master insurance policy coverage details

Changes to HOA rules can directly impact your ability to rent the property, making due diligence critical.

‍

Check out our Landlord Hub for your state or city's HOA laws.

Townhouse association rules

Townhouse HOAs typically have fewer rental restrictions since owners maintain their own structures. However, you'll still encounter rules about exterior modifications, landscaping standards, and community amenities. Review the CC&Rs (Covenants, Conditions, and Restrictions) carefully, but expect more operational flexibility than with condos.

The Fair Housing Act applies to both property types, requiring compliance with federal anti-discrimination laws in your tenant selection process.

Which investment fits your strategy?

The choice between condos and townhouses depends on multiple factors including your available capital, time commitment, risk tolerance, and long-term investment objectives.

Condo investments tend to align well with scenarios involving:

• Limited time for hands-on property management
• Preference for predictable monthly expenses and lower insurance costs
• Investment focus in urban or high-density markets
• Comfort working within HOA guidelines and rental restrictions
• Interest in a more passive rental income approach

Townhouse investments often suit situations where investors have:

• Desire for direct control over property maintenance and improvements
• Capacity to manage exterior maintenance or budget for professional services
• Focus on maximizing cash flow without monthly HOA fee obligations
• Need for flexibility in setting tenant policies and property rules
• Readiness to maintain reserves for significant structural repairs

Many successful real estate investors include both property types in their portfolios, diversifying risk while optimizing for different market segments and investment goals. The decision ultimately comes down to which ownership model better matches your investment approach and available resources.

Insurance considerations: Final thoughts

Understanding how insurance differs between condos and townhouses is essential for protecting your investment. Condo policies work in conjunction with the HOA's master policy, offering lower premiums but requiring careful coordination. Townhouse policies provide comprehensive coverage at higher costs but with more control over your protection.

Regardless of which property type you choose, adequate landlord insurance coverage should include liability protection, property coverage, and loss of rent protection tailored to your specific ownership structure.

Whether you choose a condo or townhouse for your rental property investment, the right insurance coverage and understanding of ownership responsibilities will protect your investment and support long-term success in rental property ownership.