Did you know that 5.9% of the US housing market is townhomes? But are townhomes a good investment?
There’s a lot of factors to the answer to that answer.
Throughout this article, we’ll go through the benefits of owning a townhome. We’ll also go over whether investing in a townhome is a good idea.
If you’re looking into townhome investment, read on to learn more.
Benefits of Investing in Townhomes
There are some things real estate investors should consider before investing in townhomes.
Even though townhomes are single-family homes, they're connected to neighbors by at least one wall. This alone can be a dealbreaker for homebuyers.
There are benefits that come with investing in a townhome, though.
With townhomes, there may be easier maintenance. Many townhomes are part of an association or an HOA.
Even though HOA fees may be costly, there is the added benefit of common area maintenance.
On top of the maintenance benefits, the landlord could always include the HOA fee in the rent.
Including the HOA fee in rent would allow the investment of the townhouse to become a passive income
Tip: Be sure to check the guidelines if your townhome is part of an HOA ran community. They don't always allow owners to rent their properties.
The location of the townhouse is a significant factor.
Townhomes are usually located near a downtown area. This is favorable since it would be easy to commute to for work and entertainment.
In a favorable location, the home will be more popular among tenants looking to enjoy the area.
Privacy and Security
Townhomes are great when it comes to privacy. Tenants get a private entrance and many times, a backyard that they can enjoy.
Being part of a community also provides security. There is almost always another person around, and that makes tenants feel secure. Knowing people are around gives people a sense of community and safety.
When townhomes are part of a community, tenants often get the luxury of added amenities.
Amenities could include pools, a clubhouse or, a playground for the little ones. The fees to enjoy the amenities are sometimes included in the HOA fee.
The great thing about townhomes is they are cheaper than most single-family homes. Because of the low prices, this equals low financial risk for real estate investing.
Townhomes fall within the median price range of local markets.
Note: In 2020, the median price for new homes was $334,000, and for used homes, it was $260,000.
Cons to Townhomes
While there are significant benefits to owning a townhome, there are also some cons to consider.
Frequently, there’s not much storage space in townhomes. They rarely have attics or basements, which could be a dealbreaker.
There is potential for outdoor storage if the home comes with a garage. Townhomes don't always have that option, though.
Because townhomes have either one or two shared walls, the noise can be a problem.
No one wants always to hear what their neighbors are up to, and the noise could be an issue. With townhomes, the owner must consider what kind of tenants they would want.
Depending on the tenants, the noise could be minimal. Depending on the neighbors, noise could be no problem, but there is potential for issues.
Expensive HOA Fees
If you intend to pay for the HOA fees yourself, this could potentially get expensive.
HOA fees cover the outdoor common area maintenance. You’ll still be responsible for interior costs on top of the other fees.
Note: Fees for HOAs may vary, but they generally range from $200 to $300. The more amenities in the area and services the HOA provides, the higher the fee may be.
Strict HOA Rules
HOAs have rules and regulations that you may have to follow.
There’s a lack of freedom in HOA communities. Any modifications require HOA approval. Improvements are highly dependent on regulations the HOA provides.
What To Look For in a Townhome
If you decide a townhome is something you’re ready to invest in, there are some things that you should look for. These factors will help you make the best decision possible.
Location, Location, Location
The location of your townhome is what will draw tenants in. It also helps determine if the market value of the house will go up or down.
Make sure to do your research of the area when you’re trying to find an excellent townhome to invest in.
Well Run HOAs
It’s also a good idea to research the HOA’s of the community you’re looking to invest in.
Will the HOA fees go to keeping the area nice? Are the amenities well taken care of? These are all things to consider when searching.
Note: When looking into HOAs, research how they handle non-compliance with their regulations. Some HOAs may impose fines, take liens out on the home, or even foreclose the property.
Renter to Owner Ratios
When you’re looking at a neighborhood, look at the renter-to-owner ratios.
Is it all owners? Do people only rent in the chosen neighborhood? If you find that there are more owners to renters, then the property is more desirable.
Note: Among 79.4 million homeowners in 2019, 3.9 million owned homes are classified as attached, single-family homes. Among 44.6 million renters, 5.4 million were renting an attached, single-family unit with 5 or more units.
Do Townhomes Retain Value?
The simple answer is yes. In the long run, townhomes keep their value.
However, townhouses decrease in value faster than single-family homes. They also take longer to recover in the market. Because they recover, they keep their value.
As a landlord of a townhome, you’ll have many responsibilities. These may include repairs, landlord insurance, and more.
But what is landlord insurance? Do you have to have it? Is it necessary when investing in a townhome?
Landlord insurance protects your property from a variety of situations. It also covers liability in case something happens to your tenants. The thing you have to ask is, is it worth it?
Landlord Insurance Cost
You’ll need more coverage than the usual homeowner’s insurance policy. You can get that with landlord insurance.
Because of this, you can expect to pay about 25% more for your landlord policy than for a homeowner’s policy.
Regarding landlord insurance, it’s more expensive due to who is living in the home. No one will take care of your property as you do.
Some landlord insurance discounts can lower your insurance costs. These differ from drivers’ discounts. In the long run, though, they can help reduce the costs.
Note: The average cost for Landlord insurance was about $1500. In contrast, the average cost for homeowner's insurance was only $1200.
It’s the landlord’s responsibility to take care of their property. It’s also their responsibility to make sure it’s protected.
The landlord has a responsibility to the property that includes obtaining landlord insurance. This ensures the protection of your property. It also covers liability if a tenant gets hurt.
It’s not the landlord’s responsibility to protect the tenants’ belongings. That’s what renter’s insurance is for.
Note: Landlord insurance is often called rental property insurance. Because they're used interchangeably, don't get confused with renter's insurance. Renters insurance is the responsibility of the tenants.
There are still many questions potential landlords need to know about townhouses. What type of coverage does landlord insurance give? Are there any tips for new landlords? Is landlord insurance right for me?
To answer those questions, check out this information for landlords.
So, Are Townhomes a Good Investment?
The answer is: it depends.
Like we saw above, there are pros and cons to investing in a townhome. It could be the best investment you make, or it could end up costing you.
When asking if townhomes are a good investment, it comes down to what you’re doing with the townhouse.
If you decide to invest in a townhome, check out what we have to offer with our landlord insurance. We can provide you with a free quote in just a few clicks of your mouse.
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