You want to grow your portfolio in Brooklyn. The real question is which asset fits your strategy today: a single condo or a 2–4 family townhouse. Both can perform well, but they behave differently. This guide helps you compare returns, risk, financing, operations, and exit so you can choose with confidence.
How to Compare Condos and 2–4 Family Townhouses
Better is goal‑dependent. Condos can offer simpler ownership and a broad buyer pool on exit. Small multifamily can deliver higher yields and more control. The right choice comes down to your return target, timeline, tolerance for hands‑on work, and regulatory risk. We will cover:
- Returns and cash flow drivers
- Financing paths and approvals
- Operating costs and management
- Regulations and risk (rent rules, insurance, taxes)
- Exit, value‑add, and portfolio fit
Along the way, we will point to credible sources you can use as you underwrite.
Define Your Investment Criteria
Return Goals and Timeline
Start with the outcome. If you want higher near‑term cash flow, a well‑bought 2–4 family often models stronger yields because you are buying multiple doors at a lower price per unit. Recent NYC small‑multifamily cap rates have generally sat in the mid‑5% to mid‑6% range depending on building class and location according to industry reporting. If you value lower workload and a wider owner‑occupant buyer pool on exit, a condo may fit better. Appreciation on either asset is still driven by location and building quality.
Hold period matters too. If your timeline is short, liquidity and resale friction deserve more weight. If your timeline is longer, value‑add and regulatory stability become key.
Risk Tolerance and Involvement
Ask yourself:
- How hands‑on do you want to be with tenants and repairs?
- Can you stomach vacancy in two units at once, or do you prefer single‑unit exposure?
- Are you comfortable budgeting for roof, facade, and systems, or would you rather pay a common charge that smooths building‑level costs?
- How do you feel about board rules that can limit leasing flexibility vs. managing a free‑standing building under NYC landlord‑tenant law?
Key Metrics to Compare
Model both assets with the same inputs:
- Purchase price, closing costs, and debt terms
- Gross rent and other income
- Vacancy and credit loss
- Operating expenses and reserves (by line item)
- Capital expenditures (initial and ongoing)
- Net operating income, cap rate, cash‑on‑cash, and IRR under base, downside, and upside cases
Acquisition and Financing Differences
Upfront Costs and Carrying Costs
- Condo: Plan for common charges, potential special assessments, and an HO‑6 policy. Many buildings bundle services like staff, master insurance, and some utilities into monthly charges. Charges have trended higher in recent years in NYC, which can pressure cash flow per market coverage.
- 2–4 family: Expect higher building insurance than a condo HO‑6 and line‑item costs for exterior, systems, and common areas. Landlord insurance for multi‑unit properties is typically more expensive than standard homeowners coverage as insurance sources note.
NYC property tax class can also shift your annual bill. Most 1–3 family homes fall in Tax Class 1, while condos and buildings with more than three units are generally Tax Class 2, with different assessment methods and rates per NYC Department of Finance.
Financing Structures and Approvals
- Condo: Financing depends on the building’s eligibility and review. Lenders look at budget, reserves, litigation, insurance, and owner‑occupancy. Fannie/Freddie rules and limited reviews influence close certainty and leverage see a lender overview of condo approval drivers.
- 2–4 family: If you occupy one unit, FHA and recent Fannie Mae changes can reduce down payments. FHA can allow as little as 3.5% down for owner‑occupied 2–4 units, and Fannie Mae has allowed 5% down in many owner‑occupied cases, subject to program rules and loan limits summarized by lenders. Non‑owner‑occupied loans typically require larger down payments. These differences meaningfully change cash‑on‑cash returns and your buyer pool on exit.
Reserves, Assessments, and Capital Needs
- Condo: The association budgets for capital repairs and should maintain reserves. Weak reserves can lead to special assessments and financing hurdles. Expect closer lender scrutiny of reserve funding and potential state‑level movement toward formal reserve studies for condos and co‑ops as legal analysis notes.
- 2–4 family: You carry all building‑level capex. Create a sinking fund for roof, facade, boilers, electric, and plumbing. The timing and size of these projects can swing your returns.
Income and Operating Performance
Revenue Potential and Rent Drivers
- Condo: One front door means one rent stream. Rent is tied to unit size, finishes, building amenities, and location. Gross yields often trail small multifamily on a per‑door basis because condos in prime spots command higher prices per square foot.
- 2–4 family: Multiple units diversify revenue and can lift gross yield. Older walk‑ups with value‑add potential often price at higher cap rates than a single condo in the same area consistent with NYC small‑multifamily reporting. Neighborhood supply pipelines also shape future rents; watch rezoning corridors and large projects via NYC Planning updates.
Operating Expenses and Reserves
- Condo: Common charges, periodic assessments, unit‑level repairs, and insurance. Review the budget, reserve balance, master policy, and any litigation. Healthy reserves reduce surprise costs and improve financeability see association reserve guidance.
- 2–4 family: Line‑item OPEX includes insurance, taxes, utilities not paid by tenants, repairs, snow/landscaping, pest control, compliance, and management. Expect a higher and more variable expense ratio than a condo’s unit‑only profile. Budget a management fee if you do not self‑manage, often a percentage of collected rent. Understand your operating expense ratio and how it feeds underwriting background on OPEX ratios.
Management Intensity and Turnover
- Condo: Lighter day‑to‑day footprint. The association handles common areas. Your focus is tenant relations, unit upkeep, and board compliance. Some buildings cap leasing or require board approvals, which can affect rent‑up speed.
- 2–4 family: More moving parts. You coordinate multiple leases, staggered renewals, and building maintenance. The upside is control over improvements and tenant mix. A vacancy in one unit is cushioned by income from others.
Regulations and Risk Factors
Leasing Constraints and Approvals
Condo and co‑op boards can limit leasing frequency, terms, or subletting. Rules vary by building, and co‑ops are usually stricter than condos as consumer finance guides explain. Always review bylaws, house rules, and application requirements before you bid.
Tenant‑Law Exposure and Compliance
Most 2–4 family buildings are not automatically under NYC rent stabilization because the law generally applies to buildings with six or more units built within certain dates, among other categories per NYS Homes and Community Renewal. That often gives small‑building owners more pricing flexibility at vacancy. Still, verify the regulatory status for each unit using city and state records see rent‑stabilized building lists. Local law compliance, registrations, and safety requirements still apply regardless of stabilization.
Insurance and Liability Considerations
- Condo: HO‑6 plus liability for the unit, with the building’s master policy covering common areas.
- 2–4 family: A full landlord policy for the structure, liability, and potential loss of rent. Expect higher premiums than condo unit policies and price them in underwriting see insurance benchmarks.
Tax treatment also differs by classification. NYC’s property tax classes influence assessments and rates and should be checked for any target property NYC DOF definitions. For federal tax, both paths allow depreciation and expense deductions under IRS rules for rental property, which can improve after‑tax cash flow when structured correctly IRS Publication 527.
Exit, Appreciation, and Portfolio Fit
Buyer Pools and Resale Friction
- Condo: A broad buyer pool that includes end users, pied‑à‑terre buyers, and investors. Liquidity is stronger when the building is financeable and well‑run. If reserves are weak or there is litigation, some lenders may decline, narrowing the pool see financing considerations.
- 2–4 family: Buyer pool is mostly investors and owner‑occupants seeking rental income. Financing terms and down‑payment expectations can slow sales in softer markets. That said, the cash‑flow story can attract yield‑focused buyers. Recent policy changes have widened the owner‑occupant pool by lowering down payments on some 2–4 unit loans lender summary.
Value‑Add Pathways
- Condo: Interior upgrades, smart staging, and timing to low‑inventory windows. Association constraints limit bigger value‑add plays.
- 2–4 family: Unit renovations, layouts, bedroom count optimization, separate utilities where feasible, common‑area improvements, and leasing strategies can shift NOI and valuation. Zoning and FAR constraints should be confirmed before assuming expansion potential.
Where Each Asset Type Fits in a Portfolio
- Choose a condo if you want simpler operations, lower direct capex, and strong end‑user demand on exit. It can pair well with riskier holdings as your low‑touch, lower‑volatility piece.
- Choose a 2–4 family if you want income growth potential, control, and value‑add paths. It can be your cash‑flow engine, balancing appreciation‑heavy assets.
Choose the Right Asset for Your Strategy
Decision Checklist and Next Steps
Use this quick side‑by‑side checklist for a specific address or building:
- Returns: Model base/downside/upside NOI, cap rate, cash‑on‑cash, and IRR.
- Financing: Confirm condo warrantability or 2–4 unit loan options and down payments financing context.
- Operations: Price insurance, taxes by class, utilities, management, and reserves DOF definitions and insurance context.
- Governance: For condos, review budget, reserves, litigation, and leasing rules reserve guidance.
- Regulation: Verify rent‑regulatory status and compliance items HCR overview and RGB building lists.
- Market: Check local pipeline and neighborhood trends that may affect rent and absorption NYC Planning.
If you want a second set of eyes on your underwriting, a sounding board on board packages, or a view of live listings that fit your model, reach out. With two decades of complex NYC transactions and Christie’s distribution, Gina brings a measured, data‑driven approach to investor decisions. Let’s pressure‑test scenarios, refine your buy box, and move on the right deal.
Ready to talk through the numbers and see on‑market options that match your plan? Let’s connect with Gina Sabio for a tailored investor consult.
FAQs
Which usually has the higher cap rate in Brooklyn: a condo or a 2–4 family?
- Small multifamily often shows higher cap rates than single condos in the same area because you are buying multiple income streams at a lower price per door market context.
Are 2–4 family buildings in NYC rent‑stabilized?
- Not by default. Rent stabilization generally applies to buildings with six or more units under specific criteria. Always verify unit status with state and city records HCR guidance and RGB lists.
Can I put 5% down on a 2–4 family?
- If you will occupy a unit, some Fannie Mae programs allow 5% down, and FHA can allow 3.5% down subject to rules and limits. Non‑owner‑occupied loans usually require more equity program summaries.
What condo building factors can block financing?
- Low reserves, active litigation, insurance gaps, high investor concentration, or major deferred maintenance can limit loan approvals condo approval overview.
Are condo fees really rising?
- Many NYC buildings have seen common charges increase in recent years due to higher insurance, labor, and energy costs, which can affect cash flow recent reporting.
How do NYC property tax classes affect returns?
- Class 1 (most 1–3 family homes) and Class 2 (most condos and 4+ unit buildings) are assessed differently and have different rates. Always underwrite using the correct class and current bill history NYC DOF.
What diligence is unique to a 2–4 family?
- Verify rent roll and leases, inspect building systems, confirm utility splits, check code compliance, and budget realistic capex. Consider a zoning and FAR review before assuming expansion potential.
What diligence is unique to a condo?
- Review the budget, reserves, recent assessments, master policy, amendments, leasing rules, and any litigation. Ask for board minutes to spot early issues association reserve context.
How do I factor future supply risk into my model?
- Track the neighborhood’s development pipeline and rezoning activity to gauge rent pressure and absorption risk NYC Planning updates.
Where do depreciation and taxes fit in the analysis?
- Both paths qualify for rental property depreciation and expenses under IRS rules, which can improve after‑tax returns. Coordinate with your CPA on structure and timing IRS Publication 527.
