It could be a difficult decision when it comes to choosing between townhouse and condominium for real estate investment, as the two type can generate the same level of return. Some investors choose to invest in houses, which give the benefit of land ownership, while others choose condominium as the project provides insurance coverage. In the same sense, townhouse and condominium also have its own benefit. And this article will breakdown through all the characteristics each one has.
1.Prospective tenants are mostly families group
2.Townhouse price increase every year similar to lands. The greater location, the greater increase
3.Most investors buy second-hand townhouse and rent out as an investment. It has lower price compared to buying a new townhouse but may incur maintenance cost.
4.Maintenance fee is low especially in second-hand townhouse, and could be none if the project doesn’t have communal facilities.
5.Credit line for second-hand house usually doesn’t exceed 100% of the property’s assessed price.
6.Periodical refurbishment is important as it can increase the property value and lower tenant turnover rate.
1.Prospective tenants are office workers, students, and foreigners who demand convenient transportation to their workplaces or schools.
2.Location is the key in investing in condominium. Locations with proximity to public transits, centralized area, or Central Business District (CBD) are likely to gain more residential demand.
3.The market could be very competitive as there are a great number of supplies.
4.Property owner is obliged to take care of the maintenance fee and sinking fund (single payment on the ownership transfer date).
5.Nowadays developers collaborate with banks helping buyers to acquire mortgage easier. And some banks provide a credit line up to 100% of the property price.
6.Condominium unit could also get deteriorated through time. Without refurbishment, the property’s value could depreciate and negatively affect the rent price.
To give a practical knowledge, we will simulate 2 scenarios between investing in townhouse and condominium and see how much return each can generate.
Mr. A realises the house condition is the key to attract tenant, and regardless of the location revamping the house could raise the rent price. He buys a second-hand townhouse priced THB 1.5 million and spend THB 100,000 on refurbishment. After that, he could rent out with the rate THB 10,000 – 15,000 per month (assume the townhouse is located in a centralised area).
Mr. B realises location is the key to attract demand in condominium market, so he decides to buy a condominium in Outer Sukhumvit which is 300 metres from BTS Skytrain. He buys a 1-bedroom 30 square metre unit priced THB 2.8 million. He has to pay maintenance fee THB 1,350 per month. The rent price he can get from the tenant is THB 12,000 – 15,000 per month.
From the two scenarios, we can see that both give the same range of return. While that is true, investing in a second-hand townhouse gives a higher yield rate due to the lower cost. Moreover, townhouses are usually sold in freehold term while condominiums can be either freehold or leasehold. If the property is freehold, it means you grant the ownership of that asset, in case of townhouse also includes the land. With no ownership expiration, townhouse owner can own the property as long as he/she wants and resell it with appreciated price in the future. Nevertheless, investing in either type will have to face the time when the property is vacant, no tenants. You can get a new tenant faster by hiring an agent, advertising on a property website, or make your property more attractive by adding features and renovation.
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