What is a town-home?
If you are starting out in real estate, a townhome rental could be a great option for you. Townhomes are multiple homes connected together side buy-side. Each one of those homes is individually owned and is independent of the remaining homes. The design of each home is more like a single-family home and it comes with a yard, a driveway, and most of the time with an attached garage (of course, you can sometimes have a detached garage or no garage at all).
Most of the time, townhomes are multi-level and one person or investor can own multiple units in the same complex.
In this article, we are going to focus on pros and cons of owning a townhome.
Cons of a townhome rental
a. Less privacy
Since townhomes are made of a bunch of homes connected together in a single complex, owners live closer to their neighbors. For example, if you own a middle unit you will have two neighbors on each side. This can be a little too close for some people. Some Home Owners Associations (HOAs) do not allow you to put a fence around your unit.
In case you have crazy neighbors, especially, those who party a lot; you are going to have a miserable life. Or, if you are the crazy one, you will not be able to have the craziness you desire because your neighbors will complain a lot and maybe call the police on you.
b. Home Owner Association (HOA) fee
I personally hate the homeowner association fee because they charge you an amount that can be increased and you cannot do anything about it. Plus, the fees cover things you might not need or want such as golf court expenses, gym memberships, pool, access to other random stuff such as yoga classes, or access to random events that don’t even matter, etc.
The only good thing they cover is landscaping, cleaning common area, fixing a roof and regular maintenance, etc.
When you own a home, you have room to bargain. If there is a roof that needs to be replaced, you can bargain with contractors and choose the cheapest to save money. OR you can help them while they are fixing it and reduce your labor cost. On the contrary, the association does not worry much about the bargaining part. They usually pick expensive contractors and you cannot do anything about it.
You cannot even jump in and help them to reduce the cost. You just pay. And what do they do when they realized they don’t have enough money to cover expenses? Hey, just letting you know that starting next month, the fee will be $300 more. That is if your fee was x dollars, you will be paying $x+300 and you cannot change it.
From an investment standpoint, HOA makes it difficult for houses to generate positive cashflows. For this reason, a townhome rental is not the best investment for landlords.
c. A Lot of Regulations
Townhouses come with a lot of regulations. For example, some HOAs do not allow fences around the unit, and landscaping is highly regulated.
d. Slow appreciation
Townhomes do not appreciate fast. You can safely say that they do appreciate faster than condos because of many factors. For example, you can increase the square footage of your townhome rental because you own the yard or you can add an annex in the backyard which can increase the value of your house. Keep in mind that you will need to get a renovation permit from the city which is easy. In addition, you will most likely need another permit from the Home Owner Association which is hard to get especially if your design will affect the outside structure.
Pros of a townhome rental
a. Total ownership of inside and outside of the house
When you own a townhome, you own everything inside and outside in your plot. You will have access to your yard, driveway (keep in mind that your town-home can have a shared driveway), and garage. This is like living a fancy life compared to condos. You will enjoy all the good things that come with outdoor activities such as grilling with no string attached, having fun with friends and families, playing with your kids and your friends (your doggies and kitties). The only thing to keep in mind is to follow regulations of what you can and cannot do on your property. From an investment standpoint, long-term tenants prefer town-homes condos. You will more likely find a long-term tenant for your town-home than your condo.
b. A townhome rental is affordable
Townhouses are generally cheaper than single-family houses and more expensive than condos. Again, everything depends on the market and location. Because of this reason, busy families, families that are starting out with less capital, or small families prefer town-houses.
c. A townhome rental will have less maintenance
If you have a busy life (like a single mom with 5 kids and a full-time job, or a doctor, etc) you will not worry about the snow removal or mowing the yard because your HOA might cover them. But if you compare a town-home with a condo, you get more work to do on a town-home. This is because you have more square footage to deal with plus the yard in case HOA does not cover it.
d. A townhome rental give tenants a life in the city
Townhomes are generally built in cities. This is because there are a lot of people who live and work in cities and there is a limited number of single-family homes available for them. That is why owning a town-home gets you close to the city with less commute. Also, if you are an investor, you can easily find stable tenants with ease if your property is close to the city.
d. Easy to start with as a new investor
You are probably not going to have enough money to start with for your first rental property. The good news is that townhomes are a little cheaper compared to single-family homes. Your mortgage and down payment will be a little less compared to what they could have been if you bought a single-family home. This is why many investors say that townhomes have a low entry cost compared to other rental properties.
e. Town-homes Sell Fast
It is obvious that when you are selling your town-home, you tend to attract old couples who are downsizing, first home buyers who are trying to test the water before they jump in with both feet, and small size families. These are a lot of people and, therefore, you are going to have your property off the market fast.
From an investment point of view, townhomes are great opportunities for many investors. Those who are starting out can test the market as they unravel hidden secrets of rental properties. Also, experienced investors can still make money in townhomes since it is easy to have long-term tenants who pay premium prices.
Every investment requires a thorough analysis. Make sure that your town-home rental will generate enough profits before you make a purchase.
