October 7, 2016

Freehold vs Condo Townhouse: Which is Right for You?

One of the first things you’ll need to do when you start hunting for real estate in Toronto is decide what type of home is right for you.

Are you a condo person?

Have you always imagined yourself living in a single family dwelling complete with a yard?

What about a semi-detached house, or – the best of both worlds and my personal favourite – townhouses?

Related Read: Townhouse vs. Single-Family Home – Which is Right for You?

A Popular Urban Option

For some home hunters, a townhouse represents the ideal living situation. A townhouse is a house in a small footprint in the city, usually with multiple floors and sometimes stacked one on top of the other. It is abutted on either side by other houses forming an unbroken row of homes and giving townhouses their other name “row houses.” There is usually a common foundation and continuous roofline between the units. A townhouse will have a separate entrance, and many also have a driveway or parking space and private outdoor space.

Townhouses are common in dense urban areas like Toronto, which makes them an excellent option for young homebuyers who love their city lifestyle and want a home that feels like a traditional fully detached home, but at a more affordable price.

Different Types of Townhouses

In Canada, there are two types of townhouse ownership. First is a condominium or strata ownership. In condo ownership, you own the interior of the property, just like a regular condo, and you share ownership of outside of the building, yard, parking area, and common areas.

Alternatively, some townhouses are freehold townhouses. With a freehold townhouse, you exclusively own the land your townhouse sits on and the dwelling itself, both inside and out.

But which option is right for you?

“It’s all about lifestyle,” says Ronen Fishman, broker of record at Upperside Real Estate. In many cases, choosing between a condo townhouse and a freehold townhouse depends on the preferences of the buyer. Let’s break down the key differences below:

Condo Townhouse Pros and Cons

Why this option might work for you:

• Less maintenance: A condo corporation or homeowners’ association (HOA) governs most condo townhouses. You are required to pay monthly condo fees to the condo corporation. The condo fees cover the cost of snow removal, lawn care, and maintenance of the common areas.
• Good neighbours: Since all homeowners in the condo complex pay condo fees, the exterior of their units will not fall into disrepair and negatively affect the resale value of the other units.
• Cost: Condo townhouses tend to be less expensive. “There tends to be an inverse relationship between the maintenance fees charged and the price,” says Fishman.

Other things to consider:

• Less autonomy: Condo townhouse owners are subject to the bylaws of the condo corporation, which may have rules about changes you can make to your unit, fixtures you can install in your backyard, or even how to decorate for holidays.
• Higher fixed costs: Condo townhouse owners must pay condo fees every month, even if you don’t use the common space amenities.
• Special assessments: If the condo corporation’s reserve fund is poorly managed, you may be levied a special assessment, which is a one-time fee to pay for repairs and maintenance. The special assessment could be in the thousands of dollars.

Freehold Townhouse Pros and Cons

Why this option might work for you:

• More autonomy: Freehold townhouse owners are free to alter the interior and exterior of their home. You can change windows, siding, or even install a hot tub.
• More property appreciation: Freehold townhomes are in demand and are more valuable than condo townhouses.
• Lower maintenance costs: Freehold townhouse owners can choose to perform regular maintenance like snow removal and lawn care themselves instead of outsourcing it to a third party. This also applies to repair and renovation projects.

Other things to consider:

• You are responsible: You are completely on the hook for any repairs and maintenance on the property.
• No control over neighbours: You own your property and your neighbours own theirs. If they choose to paint their home neon green or turn it into a student rental, there is nothing you can do about it.
• More expensive: Freehold townhouses are in demand and are more expensive than their condo counterparts, sometimes ten’s of thousands of dollars more expensive.

Tips for Buying a Freehold Townhouse

Freehold townhouses are more in demand than condo townhouses because you avoid paying condo fees and you have more control over your property. As a result, these units tend to sell quickly and for more money. Here’s what you should do if you are considering purchasing a freehold townhouse:

“Get pre-approved!” Fishman says, adding that mortgage pre-approval will help homebuyers set a budget they are comfortable with and understand their price ceiling. You should also be prepared for a bidding war because freehold townhouses are popular and the Toronto housing market is competitive.

Finally, choose a townhouse that will meet your needs for the next five to 10 years, instead of one that only meets your needs right now. Selling a property is expensive, and to reap the financial rewards of a prudent real estate investment, you should be prepared to stay in your home for the long haul.