buying a townhouse

Is Buying a Townhouse a Good Investment?

In Real Estate Investing by Bergan & Company

As of 2016, almost 30% of Americans were renting their homes.

Today, the number of people renting is even higher than it was then. More people renting means more potential profits to be made form rental income.

That is, potential profits stand to be made if you know how to make smart real estate investments. And inquiring into buying a townhouse is a great place to start that journey.

Keep reading to learn whether townhomes are a good investment for your portfolio.

What Is a Townhouse?

Townhouses are also known as rowhouses. They’re different from detached houses is that they’re attached to other properties. They’re also different from condominium complexes, even those that have multi-story, attached homes as part of the complex.

When you purchase a townhome, you typically own the home, the exterior of the home, and the land the home is on, including back and front yards. When you purchase a condo, you only own the condominium unit. And when you purchase a home, you don’t have maintenance and amenity fees, which we’ll talk more about next.

Townhome complexes have common spaces. These are shared spaces between all the residences of the complex.

Townhomes usually have maintenance and amenity fees that go toward caring for those common spaces in different ways. They may also have a homeowners association (HOA) that organizes maintenance and landscaping. They might also be responsible for things like snow removal, pool care, and scheduling the use of the clubhouse or event rooms.

In some cases, an HOA will also set guidelines and rules for the aesthetics of your home and yard. They may enforce the use of permits and other community-set rules.

Buying a Townhouse to Rent Benefits

Perhaps the biggest benefit to buying a townhouse to rent has to do with the financial benefits. In comparison to purchasing a detached home, a townhouse is significantly less expensive. For those on a limited budget, or just starting out on their rental property journey, buying a townhouse is a great, affordable option.

While maintenance fees could easily be painted as a disadvantage to owning a townhouse, it actually means that you’re not responsible for a lot of labor-intensive and expensive maintenance around the complex.

Meaning that your renters have access to all of the amenities of the facility, and these are maintained by the HOA. Keep in mind though, even though the HOA takes care of a great deal, you’re still responsible for the maintenance of your unit and its’ exterior.

The first real of real estate and another benefit of buying a townhouse to rent is location, location, location. By which we mean that townhome complexes are often located in great places.

They’re close to schools, transportation, other amenities, and they’re their own little tight-knit community. All of this also adds to your resale value should you ever decide to sell your rental property.

Of course, a big reason why you’re thinking about buying a townhouse to rent is for the rental income. Townhomes are an attractive option for families who require more affordable housing than a detached home. The potential to make a quick return on your investment is relatively high with a townhouse.

Buying Rental Property Today

Part of making a smart real estate decision isn’t just knowing what type of property to buy. The other aspect is knowing when a good time to buy is. Because even if you buy the best type of property in a bad market, you won’t see your return quickly.

So, is buying a townhouse to rent a smart idea in 2019? The short answer is yes. 

The long answer is, there are two major considerations in the real estate market forecast that point to this being a good real estate investment.

First, mortgage rates are expected to rise this year. And while rates have risen, they’re still at a historic low. More importantly, the fear of rising mortgage rates may deter potential home buyers from purchasing homes – which means you have less competition for buying a townhouse and a larger pool of potential renters.

Speaking of a larger pool of potential renters, it is true that the number of Americans renting their homes is at a 50-year high. And those numbers don’t show any sign of decreasing.

This is especially true in terms of the number of Millenials now entering the market. Millennials are more likely to opt to rent their homes than buy. Appealing to this generation will have your lease signed for years to come.

Other Rental Property Investment Options

Apart from townhomes, other rental property investment option includes detached homes and condominiums.

Condominiums offer an almost completely hands-off approach to rental properties. With a condo, you’re only responsible for your own unit and its interior. The HOA will take care of all of the amenities and, in some cases, even some parts of the condo (i.e.HVAC).

Condos are also a more affordable option than townhomes, both because they have no yard and they’re usually smaller. However, most modern condo complexes have shared spaces with plenty of amenities and outdoor space.

Detached homes, of course, take a lot more work as a rental property. As the sole owners of the indoor and outdoor spaces of the home, you’re responsible for all of the maintenance and costs associated with renting. 

More Information on Rental Investments and Real Estate

There are two key questions to ask yourself when embarking on real estate investment. The first has to do with the type of property you’re going to buy, and what’s within your budget. The second has to do with whether the real estate market is ripe for entering.

Buying a townhouse is significantly more affordable than a detached home, with all the comforts of a single-family dwelling and none of the maintenance. And with more people entering the rental market instead of buying their homes, your potential pool of renters is growing.

And if you’re still unsure, let us help you out. Contact us for more information on rental investments, real estate, and property management.