Town Houses Buying

Up a notch on the food chain are town houses. They are often built in rows and can be single or two story, with each unit having a small yard or patio. The grounds and structures are still owned in common and maintained by the homeowners association.
Town houses tend to hold their value slightly better than condos, but they still suffer from many of the same problems if you need to sell in a hurry. So when you shop for a town house, zero in on projects that have a great location, good amenities, and a homeowners association that keeps the grounds and buildings in good condition. Also, check out the number of units that are rentals; anything over 10 percent should raise a red flag.
Proceed with caution if:

• The developer couldn’t sell the units and rented them out to generate cash flow.
• The project didn’t sell well, so the developer discounted the units and investors bought them for rentals.
• The project went into foreclosure or bankruptcy, and the bank took over the project and liquidated the units attracting bargain hunters and investors.
• The life cycle of the project is at a point where the original owners want to move up or sell and can’t, so they rent their units and values ratchet down.

There is also opportunity in these situations for a buyer who is looking to downsize or retire. You can get a great deal if you’re willing to ride out the market and get active in the homeowners association. Eventually, the rentals will sell and the project will stabilize, as more permanent homeowners move in. Many projects that go through this cycle end up becoming desirable and upscale communities, although it may take a few years to do this.
The key to finding these potential winners is to look for location. A development may be going through problems now, but if it’s attractive and has a good location, it will eventually become a winner. Interestingly, FHA usually won’t insure loans on projects that are more than 50 percent rentals and Fannie Mae limits its lending on projects with more than 49 percent rentals.