Townhouses have become an increasingly popular investment choice for real estate investors. As a type of attached housing, townhouses offer some benefits over single-family homes or condos in terms of investment potential. In this article, we will analyze the pros and cons of townhouse investments to determine if they can be a good option.
Townhouses provide more affordable entry points than single-family homes
Compared to detached single-family homes, townhouses typically have lower asking prices for an equivalent amount of living space. The shared walls between units make townhouses more affordable per square foot. This allows investors to get into a property at a lower price point while still having rental units of adequate size to demand solid rental rates. Additionally, the lower price compared to single-family homes means reduced risk if the market takes a downturn.
Townhouse rents can be stable with good tenant demand
The layout of townhouses appeals to many renters, especially young professionals, small families, and downsizing empty nesters. These groups are drawn to townhouses for their private outdoor space, ease of maintenance compared to single-family homes, and community environment. This reliable tenant demand allows townhouse investors to achieve and sustain healthy occupancy rates, which is key for generating ongoing rental income.
Townhouses offer potential for appreciation over time
Like other types of residential real estate, townhouses can appreciate in value over the years. Townhouse prices often rise along with the surrounding neighborhood. Townhouse investors who make strategic purchases can see their equity build as rental income pays down the mortgage and market values slowly increase. While townhouses may not see the same rapid price growth as standalone houses, they can deliver stable returns from a mix of rental income and long-term appreciation.
Management and maintenance costs are shared among the HOA
Unlike detached single-family rentals, townhouses fall under homeowners associations (HOAs) that take care of exterior maintenance and repairs by collecting dues from each owner. Having shared infrastructure and amenities allows investors to save on maintenance costs. However, HOA fees also eat into profits on rental income, so investors must account for this recurring expense.
For real estate investors, townhouses can present an appealing middle ground between houses and condos. Townhouse investments come with more affordability and built-in tenant demand compared to single-family home rentals. They also provide more ownership control than condos. While no investment is without risks, townhouses can deliver rather stable returns from rental income and moderate appreciation over time.