If you’re considering investing in a townhouse, then you’re going to want to read the fine print first.
Whether it’s your first step into real estate investing, or you’re looking to branch out, you’re going to want to ensure it’s the smartest investment for you.
Townhouse Vs. Condo? What’s The Difference?
First, we’re going to explain the difference between townhouses and condos. While they may seem similar, they are some vast differences you should be aware of.
It could be the case that a condo is better for you, or that a townhouse is a perfect investment. It’s good to be educated on the differences, so you know exactly what you’re getting.
- Townhouses are often built in rows, and they are referred to as row houses. They are regularly several stories tall.
In comparison, condos are available in a variety of styles. There are cottage condos, one-story condos, bungalow condos, and even condos that are apartment-style complexes.
- If you own a townhouse, you own both the inside of the house, and the outside of the house.
In contrast, if you own a condo, you only own the interior. The Homeowners Association (HOA) owns, as well as controls a large portion, of the condo. This pertains to the exterior walls, the front and/or back grass area, and even the communal area.
- When it comes to maintenance and HOA fees, on average, townhouse owners pay less.
It’s more expensive for condo owners because it’s the property is split in ownership. Plus, it’s often the case that condos have more communal amenities.
Why Do People Invest In Townhouses?
Townhouses As A Second Home
So, now we might want to consider the various reasons people decide to invest in townhouses.
Sometimes, it’s a personal investment. It’s not about a monetary return on investment, it’s about having a balanced life, provided by an added luxury.
If a client currently lives in the city, and while they plan to live there, they regularly escape to quieter areas for breaks, they may decide to purchase a property.
This is their own home, which they can retreat to when they so, please. It’s also handy for any family or friends coming into town. It could be that in the long run, they save money by investing in a townhouse if their expenses of trips rack up a vastly high bill. This is rarely the case, though.
Of course, a townhouse in this sense is a luxury. There is often no monetary return on investment here, but sometimes the return in investment is the creation of balance in their life.
Townhouses As An Investment
If you’re reading this article, it could be that you relate more to this section. You’re not really looking for a second home, you’re looking for a return on investment.
The way a client will make a monetary gain is usually through renting. Depending on the area and the quality of the townhouse, a client can earn a substantial amount each month for renting their townhouse.
It’s also often cheaper to invest in a townhouse than it is to invest in a detached home or certain condos. It carries a long-term capital development, that is frequently (not always!) low risk, with a guaranteed return on investment.
Moving on, we’re going to explore the key factors that go into investing smartly. You’ll want to contemplate these before going forward with any investment decisions.
How To Make A Townhouse A Good Investment
So, if you’re thinking about investing in a townhouse, there are a couple of factors that you will have to consider, before purchasing any property.
You’re going to want to make sure that you have the right property for you, and that you can maximize your profits.
Location, Location, Location
The amount of rent you can charge will depend on the state you live in, the city you live in, and the area you live in. You need to check the market supply, and the rental rates of the area your investment property is located in.
It could be that while the property is amazing, rental rates are low, and you will not make a huge profit.
You’re also going to need to consider other key selling points. You might have a gorgeous property, which in theory would make big bucks, but the location could be abysmal.
The neighborhood might be dodgy, crime rates might be high, and the property might not be near any local amenities.
Ideally, you’re going to want your townhouse to be of modest size, feature a modern design, and be generally low maintenance. The townhouse should also be close to local amenities, as this can drastically affect the price of your property.
While gentrification mostly occurs in urban areas, there have been cases of gentrification occurring in suburban areas. If this is the case, whether it is ethical or not, the average rent will be higher than otherwise.
Check The HOA Rules And Regulations
Before you invest in any property, it’s vital that you thoroughly read the homeowner’s association guides and rules.
While you own the property, the HOA is in charge of certain areas. These are the common areas, like the parking lot, or the swimming pool. There’s a little more to it than that, though.
The HOA can regulate the type of improvements you make. It could be that you have big plans to do certain revolutions, and even if you own the exterior walls, you legally might not be able to.
It could be that the townhouse you’re thinking about investing in is heavily ruled and regulated. Therefore, it might be in your best interest to look at townhouses in another neighborhood. Follow the same process, and make sure that the fine print matches your plans.
Another thing to consider is fees from the HOA. If there are any security upgrades, emergency repairs, or even legal fees, these need to be covered. While you might be earning a substantial amount of money on rent, if you have hefty fees to pay, you might not be making any profit.
You need to make sure that you check every possibility because if you miss one small thing, it could end up costing you big bucks.
Make It Modern
It’s pretty obvious, but how your property looks will drastically affect the price people will pay for your property. If you’re investing in a townhouse that is old, beaten down, and rusty, it’s not going to sell well.
If you’re investing in a modern townhouse, which freshly plastered and painted walls, a well-working boiler, and so forth, it’s going to do better.
As I stated earlier, it does also depend on the location. Sometimes townhouses that aren’t particularly eye-catching still sell for a lot, because of the market rate in that area.
However, you may be up to your eyeballs in HOA fees, so nothing is black and white. That’s why the fine print is crucial.
Downsides Of Investing In A Town House
Slow Appreciation Rate
If you plan on selling your investment property for big bucks in the future, you might be disappointed.
Townhouses are generally appreciated at a slower rate than single-family homes, and occasionally, condos.
It can even be the case that townhouses lose value, so you don’t end up making a profit — or the profit you do make, is much lower than what you expected.
Before investing in a property, you need to do a serious historic real estate analysis on the appreciation of townhouses in that area.
You’ll also want to check if any major developments are going to happen, e.g. a whole estate of fancy, new townhouses.
Every state and city is different, but there have been many cases when the profit earned is minimal for the effort that was put in. Don’t let that be you.
Lower Rental Potential
While you can earn a high amount of money from renting, it can be considerably less than if you invested in a single-family home. While there is garden space and privacy within a townhouse, it is not matched to the outdoor area and privacy of a single-family home.
Of course, we’re talking about averages here, as every situation is different, but data lie.
The downfall is that the lawns tend to be much smaller, this isn’t ideal if you have children, pets, or enjoy a larger outside space. Plus, while the townhouse is technically isolated, the feature of ‘sharing’ walls can be unwanted.
Regarding pets, you also have to consider the HOA rules and regulations.
Perhaps you have a decent outdoor area, but no pets are allowed. This can affect your renting potential, especially as many pet owners, will pay more for a large outdoor space.
Overall, townhouses are a good investment. The only concern is that you have to research intensely.
If you forget to check one aspect off your research list, it could cost you big bucks. Ensure you check the rental prices in your area, whether work is being developed, and the HOA rules and regulations.