Do condos have a lower ROI than single family homes?

Q. We’ve been looking for investment property  in San Jose and everywhere in Silicon Valley from Alum Rock to Mountain View. My friend tells me the ROI is harder to calculate on a condo vs a townhome, and that they are riskier investments compared to a single family home. What do you think?

A. Certain condos/townhomes are riskier when comparing ROI to single family home. Location plays into the comparison for type of home and ROI. If you are comparing a townhome in Mountain View to a single family detached home in Alum Rock, then you may have a better ROI on the townhome.

In addition condition plays a part in  ROI. If a condo/town home HOA is in trouble financially, has low reserves and lots of deferred maintenance, compared to single family home with updated roof, furnace, etc – the return on ROI is clear. Visa versa, if the single family home has lots of deferred maintenance, has not been updated, the condo townhome may yield a better return based on how much you invest into fixing/updating the single family home before you resale.

Finally, ROI is not just a number. If the ROI pencils out but you wish you had a backyard, you might as well be renting an apartment. Lifestyle and sometimes affordability is why buyers choose condo/thomes over single family homes. But for the most part, single family homes include land, and that is the “scarce resource” that provides the potential upswing for appreciation in the long haul.

There are more variables I could throw out but I think these are key.

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