Now that housing costs are rising, renters are looking for quick and easy ways to buy a home. Most people don’t need a mansion but want plenty of room and a safe neighborhood. Townhomes are growing in popularity due to their attractive combination of proximity to both jobs and shopping centers. Considering their rising demand, you may be asking yourself, are townhomes a good investment?
This article will take you through the benefits of investing in townhomes, their downsides, and how to choose a suitable townhome.
Are Townhomes a Good Investment?
Townhomes are an excellent option for a long-term investment as they retain value.
On a general note, property values fall all the time, but they tend to recover soon and remain stable. You might not lose your investment, but you’ll see ups and downs in the market. Most townhouse owners make mistakes and get impatient as their property recovers a bit. Instead of selling your townhouse during times of economic downturn, put it on rent and sell it once its value increases or reaches the same level as before.
Should You Rent Out a Townhouse
Renting a townhouse, for the time being, is a valuable investment as you’ll get some return. Your townhouse’s rental value will increase if it is in an area frequented by professionals and their families. The rental price must cover the mortgage payment and the fees you pay to the HOAs for maintenance.
Before finding a tenant, check the HOA rules and if they offer short-term, long-term, or won’t allow rentals. Secondly, check whether the neighborhood is quiet or full of lively people. The tenant you find should be comfortable with the community, so you would have fewer complaints from them.
Benefits of Investing in Townhomes
Here are a couple of things that real estate investors must consider when investing in a townhome. Even though townhomes are single-family homes, you’ll share one wall with your neighbors.
This is not something property investors might like, as some people like to have a place without getting close to neighbors. Some are more interested in detached houses, so they might pay little attention to townhomes.
One benefit of townhomes is their easy maintenance because of a homeowners association. Since most townhomes are a part of an association, they provide the required maintenance.
The fees might be a bit more, but you don’t have to take care of anything. Some landlords add the HOA fees to the rent, so if you put your townhomes on rent, this HOA fee can act as a passive income. However, before renting the townhome, make sure to check the guidelines because some associations don’t allow renting their properties.
The location of a townhome is a significant factor that might increase your interest in investment property. Most townhomes are near downtown making it easy to commute to work, shops, and entertainment.
Everyone would like a home near necessities, so they don’t have to travel a lot. Being a real estate agent, you must look for townhomes in a favorable location so more buyers will show interest in them.
Townhomes are a much safer place since they are a part of a community. Security is an important factor every tenant checks before opting for a place to live. To have your home broken into at night, only to have to phone 911 and wait for aid to arrive, is a situation no one likes to be in.
In such situations, a family can easily ask for help in a community since most communities are connected via bells or emergency helplines. Police might take some time to reach you, while your neighbors will only take a minute.
Townhomes are excellent for privacy, as they have a separate entrance and even a backyard where families can enjoy themselves without being peeked at by others.
Townhomes with a backyard are more expensive, and renting them might get you more than a typical rental income. However, they might also require more maintenance as kids and animals can ruin the backyard quickly.
Communities usually add amenities for their residents, such as a swimming pool and a playground; some even offer a clubhouse. However, they are not free; the charges for such facilities will reflect in the HOA fees.
For a tenant, such facilities are great for entertainment, and for a person looking for townhouse investment, these HOA fees are an excellent income option.
The best part about townhomes is that they are relatively cheaper than most single-family homes. Because of their low price, many people show interest in them, and if they get extra security, privacy, and facilities, your investment will start earning profit quickly. It is all about the location and what features tenants get in townhomes.
Downsides of Townhomes
Among all the benefits, there are some downsides of a townhouse investment that you must know. These factors might be fine for some, but some potential clients might consider them essential. If you can find a townhome without these downsides, that would be great.
Townhomes have one or two shared walls, so noise can be a problem. You might be quiet, but your neighbors might decide to have a party disturbing your entire night.
This might be fine for people who like to party and stay awake at night, but those who need to be at work early, would not choose townhomes with such neighbors. The community might have rules regarding noise, but many tenants might not follow them.
Townhomes don’t offer much space; you’ll rarely find a basement or attic, and some even miss a garage. These might not be a problem for a person living alone, but a family would at least require a garage as parking outside is dangerous even in a community.
HOAs have strict rules regarding timing and changes you can make to your house. Even for the slightest change, you require permission from the HOA, which might result in a rejection.
The lack of freedom in such communities can be a dealbreaker as some people like to renovate their homes now and then.
HOA fees are high, so if you pay them from your pocket instead of adding them to the rent, things can get expensive. These fees only cover the exterior maintenance; the interior maintenance is covered by the owner bringing double expenses to your head. However, HOA adds such fees to the rent, so the tenant has to pay them; you must clarify this before giving your rental property.
How to Choose a Suitable Townhome
If you have prioritized townhomes in your investment properties, here are some factors you should consider that can help improve your decision.
Location Matters the Most
The location you choose to invest in a townhome is the biggest factor. It might not be the best location in the present, but it must show some potential for the future. Moreover, location also determines how drastically the property’s value decreases or increases with time.
Another factor is your neighboring properties; if they are all condo owners, the chances of your property catching a tenant or a buyer’s eye quickly.
A townhome near many offices, convenience stores, freeway, and entertainment places like a bar or club is preferred by many people. Finding a townhome available for purchase might be challenging for such places, but you should prioritize them on your list.
Check your real estate market, see which locations they offer, and choose the most convenient one or wait for some time.
A well-managed HOA is another factor that determines the success of your investment. If that community has flexible rules, many people would love to live there as they’ll have some freedom to make improvements.
On the other hand, the amenities offered by the community are well maintained, and the fees they take are improving the overall area or not? No one would like to live in a community where management takes a long time to fix small issues.
Are townhomes a good investment? It depends. There are pros and cons of investing in a townhome. If you plan and choose the right location, HOA, and neighborhood, your investment can bring earnings in a short time.
Insurance, homeowner’s association dues, regular interior upkeep, and house modification may all add up, especially if you find yourself needing to add one or two walls. So it’s important to choose tenants who won’t cause damage to your property and who can afford to pay rent each month. Furthermore, always consult with a real estate agent before checking out a property for investment.
Townhome Investment Potential
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.