Are Townhomes A Good Investment?
If you’re a real estate investor looking to diversify your investment portfolio or want to begin your journey into real estate investment professionals, a townhome is a fantastic property type to look into!
There are a lot of factors that go into predicting and judging the projected value of an investment property, to put it into simple terms, the location, size, and market conditions all have massive impacts on the value of a townhome.
Do Townhomes Appreciate In Value?
Many people are looking for an investment property that appreciates in value. Townhomes are a great option for those who want to invest in a property that will grow in value over time.
Townhomes are usually more affordable than single-family houses, and they offer more amenities, such as pools, gyms, and other social spaces. These communities also have lower maintenance costs than single-family houses.
What should you expect when reading this article?
We’re going to tackle the most important aspects of a townhome investment: The differences, the benefits, and what to look for, and in the end, you can decide for yourself if a townhome is a good investment to add to your portfolio.
Differences between a Townhouse, Condo, or Apartment
In terms of property styles, the main difference between a townhouse and a condo or apartment is that a townhome is typically a detached unit with its own entrance.
A townhome, also known as a row house, is an attached property with its own private entrance. Townhomes are usually built in rows, often of 3 or more units. A condo or apartment will typically have common entrances to the building, parking lot, etc.
A townhome is an investment property that is typically a detached, single-family home with a separate living space on the lower level. A townhome is often referred to as a “townhouse” in other parts of the world.
A condo or apartment building is a multi-unit dwelling that offers shared amenities like a pool and roof deck. Condos and apartments are typically rented out by the unit, which can be as small as one bedroom or cover an entire floor of an office tower.
The primary difference between the two properties is their size, location, and availability of shared amenities. Townhomes are usually located in suburban areas while condos and apartments are usually located in urban areas. Townhomes also have more space than condos or apartments as well as private outdoor space for each unit.
A townhouse is a type of home that shares walls with other townhouses in a row. Townhouses are usually two stories and have a basement. The exterior of the townhouse is usually brick or siding, and the roof is either flat or pitched.
Condo or apartment buildings are typically four to six stories tall and are made up of individual units that share common walls with one another. Condos or apartments typically have elevators, balconies, and amenities such as gyms, pools, etc.
7 Benefits of Investing in a Townhouse
A townhome investment has the possibility of coming with a homeowners association fee. This fee usually involves having up-to-date home standards, and other community individuals imposing important housing standards to keep a healthy neighborhood. Try seeing this benefit as a good calendar for upkeep on an investment property.
On the topic of neighborhoods, here’s a benefit that provides a more stress-free type of investment. Townhomes are more likely to be located in suburban communities neighboring downtown cities. Perfect for commuter borrowers looking to have a more quiet living situation while still being able to work in those busy money-making cities.
Privacy and Security
This benefit just adds to why investing in a townhome is a more secure investment than any other type of condo or small apartment. Townhouses provide the borrower with security. They can live stress-free knowing they have their own private driveway, backyard (which most townhomes are required to have), and a less packed community. Being around a community provides security for the borrowers inside.
Bouncing off the topic of community… Amenities are often provided which heavily benefit tenants and increase their likelihood of purchasing a townhome instead of a condo/apartment.
Now to get to the financial logistics of the benefits, we start with low prices! Townhomes are priced at a way lower price on average than a single-family home or even some small apartments! For example, the average national cost for building a townhome is $115,000- $237,500.
Because of the relatively low cost of purchasing a townhome, you’re more likely to get better cash flow from renting out the property. Cash flow refers to the amount of leftover money that is profited from your investment after all monthly expenses are paid off!
This benefit is one of the most important yet kind of a double edge sword. Investing in a townhome means that your money will be associated with the conditions of the real estate market as a whole.
This means that if the real estate market appreciates in value as it has in the past, your investment will be much more profitable than planned. But… what comes up must come down and the same goes for the market conditions.
So be mindful!
3 Things to Look For In A Townhome Investment Property
Now you know the benefits of owning a townhome, now how do you decide whether a townhome is a good investment for you or not?
There are so many aspects to look at and many of them come with personal preferences and specific financial situations. That being said, there are some fundamental factors to look at that can put you in the right direction of getting a good investment property.
Making sure your investment property is within the perfect distance from both a large city and within walking distance of a fantastic neighborhood is critical. You want to make sure your townhome can get the attention of both commuter borrowers and borrowers looking to start a family in a comfortable neighborhood.
This factor goes hand-in-hand with the HOA benefit listed earlier. You want to ensure that the townhome you invest in, is within a community that is looking to grow both in market value and in affluent families/residents. Looking at the average income gained per year by residents is critical. On top of this, a number of annual garage sales, community events, groups, cookouts, and crime rates are important to look at.
Renter-to-owner ratios help decide whether a property is more beneficial to renters or buyers and townhomes are notoriously good for buyers depending on location! For example, The California price-to-rent ratio from the latest estimates is 32.2 and has risen 1.2% from 31.8.
The Bottom Line
So to really answer your initial question about whether a townhome is a good investment for you or not?
We know we know it isn’t very pleasant but it’s true!
We’ve shown you all the possible benefits and the factors that make up a good townhome investment, but we don’t know your specific financial situation! And that’s what will make a good townhome investment turn into a bad one real quick, (or vice versa).
Because of this, it’s important to contact a financial representative who can help you decide whether a townhome is a good investment for your portfolio, or if they could refer you to another type of investment that will suit your portfolio better!
They may even help you finance it.