Many people who are interested in real estate investing consider townhouses to be attractive investment options due to the low cost of entry, the numerous community amenities, and the virtually maintenance-free environment. Due to the fact that the purchase of a townhouse will typically involve the acquisition of land as well, many investors anticipate high appreciation for these properties. However, despite these advantages, there are a number of factors that may make townhouses an unsatisfactory choice for use as investment vehicles.
When it comes to purchasing a home, the majority of people immediately believe that there are only a couple of options available to them. These options are single-family homes and apartments or condos. However, ignoring the possibility of constructing a townhouse would be a significant mistake.
If you're just starting out as a real estate investor, you might be wondering: "Is it a good investment to buy a townhouse?" But, unfortunately, the solution might not be as simple as you imagine it to be!
Learning how to effectively conduct research is an essential skill to acquire as you make your way into the world of real estate investing. This includes conducting research on the specific type of investment property you have in mind and asking yourself whether or not 2019 is a good time to buy a house. Because if the response to the second question is "no," then there is no reason to even consider investing in townhomes at this time, is there? When considering an investment in a townhouse, you should educate yourself on a variety of factors, as well as the benefits and drawbacks associated with each one.
What Is The Definition Of A Townhouse?
The advantages of single-family detached homes and condominium living are combined into one convenient living option in the form of townhouses. It is difficult to define them based solely on their appearance alone because their size and structure can vary greatly from one region to another. The majority of the time, however, these will be multi-story homes that are connected to one or more additional homes via a communal wall. There's also a possibility that some of them have tiny yards or patios.
The ownership of these homes is different from that of a condo. In contrast to condo residents, townhome owners typically retain ownership of both the interior of their dwelling as well as the land surrounding it (a small yard or patio). As is the case with condos, homeowners may be required to pay a HOA fee to cover expenses such as the maintenance of common areas and the collection of trash. Are you thinking about giving your home a makeover? No need to look any further! MJS Construction Group is here to assist you with any dual occupancy builder needs you may have in Melbourne.
The definition of a townhouse provided by the Census Bureau offers some direction, at least in terms of determining what constitutes a single-family home. The United States Census Bureau requires that in order for a townhouse to be considered a single-family structure, it must not have any units above or below it, it must be separated by a wall that extends from the ground to the roof, it must maintain separate heating systems, and it must have individual meters for all of the public utilities.
The History of the Townhouse
During the 18th century, wealthy British landowners and members of the nobility are credited with coining the term "townhouse." At various points throughout the year, these families would dismantle their country estates and transport their entire households, including the servants and children, into the city in order to attend social gatherings, balls, shows, and events that required black tie attire.
These wealthy families were able to comfortably fit into a single property in the middle of town thanks to the availability of townhomes. As a result, they did not need to own a large number of properties that were underutilized. To put it another way, these vacation homes were cozy despite their small size.
In the late 18th and early 19th centuries, as the population of the United States continued to expand and there was an increased demand for housing, townhomes began to gain popularity in that country as well.
Real estate expert Todd Mahovlich describes a townhouse as "a house on a small footprint of land comprised of multiple floors." "In North America, the townhouse evolved and came to be known as a house on a small footprint of land," he says. "The homes were typically located within walking distance of public transportation and industrial areas, and they featured a level of opulence that was adequate for accommodating wealthy individuals."
The townhome was at one time most popular in large cities such as New York, Boston, Philadelphia, Chicago, and San Francisco; however, it has since become a mainstay in hundreds of cities and towns across the United States, including Houston.
Frequently Asked Questions
They provide a style of low-maintenance living for your potential tenants, which adds convenience to your rental listing. Townhouses provide low maintenance, modern designs, adequate size and proximity to amenities. All these factors attract quality tenants, which means townhouses hold high tenant market appeal.
A townhouse is a multi-level building designed to mimic a traditional house that is owned on a strata title. This means you own the dwelling but share the land with other people.
Townhouses don't appreciate nearly as fast as traditional homes because they don't entail the same amount of land. While most townhouse-owners don't care about their minimal yards – or the complete lack of them – it means appreciation takes longer.
First time home buyers may consider buying townhomes instead of single homes due to the less-intensive maintenance. However, the question is do townhomes retain their values? The short answer is yes, townhomes most certainly retain their value.
Generally speaking, houses have better capital gain than apartments because the land they sit on tends to appreciate in value over time, whereas apartments generally have a much lower portion of land (if any at all), so they won't rise in value as quickly as houses do.
2019 Real Estate Market Forecast
Let's answer the first question in our research: Is 2019 a good time to buy a house? This is a major question that can be answered easily by looking at the real estate market forecast for this year. Of course, one of the main topics that have been widely discussed by experts in the field for 2019 is the expected rise in mortgage rates. Mortgage rates are expected to reach 5.8% in 2019. While the rate has increased, experts do not advise against buying an investment property as the mortgage rate is historically low.
Also, the expected rise in mortgage rates is predicted to deter some home buyers, which could mean less competition for you in the market. This will likely cause a halt in the rise of property prices. In 2019, properties for sale were expected to remain at the same price or even fall in price due to the expected decrease in buyers.
Finally, another important point that a real estate investor must study is the rental population in the market. According to several experts, older and younger generations alike are steering clear of buying property and choosing to rent for long periods. This is great news for you because it means you will potentially have a larger pool of tenants to rent your property. So, is buying a townhouse a good investment in 2019? Well, it seems the answer is yes.
Advantages of a Townhouse
What follows is what the majority of us believe to be true about townhouses: They're basically luxury apartments. These are houses that are packed in so closely to one another that they share walls. They are governed by authoritarian homeowners' associations that will compel you to dye your dog to match the color of your window coverings.
It seems that the vast majority of us are completely mistaken about townhouses. They are neither apartments nor houses, nor even condos for that matter. In addition, homeowners associations won't force you to dye your pet's fur. Probably. (Just in case, maybe you should ask before you move in if you have strong opinions regarding the dying of dogs.)
Be a Lazy Bum, Have a Nice Yard
It's a given that the land that comes with the purchase of your townhouse won't be a particularly sizable plot of land by any stretch of the imagination. It might be a flowering tree, a flowering shrub, or even just a border of petunias, but it will definitely be a patch of grass.
At this point, the role of the homeowner's association becomes relevant. You make a monthly contribution to these individuals, and in exchange, they maintain that area of grass. Also, the exterior is getting a new coat of paint. And replacing the shingles on the roof. And you are clearing the leaves from your parking spot, which is very nice of you. Also, clearing the snow from the parking lot if you happen to live somewhere that isn't a tropical paradise.
If you have the desire and the space, you could plant a row of rose bushes along the front walk, but if you don't, no one will give you a second glance or question your motives. You will never again have to risk injuring your back by bending over to pull a single stupid weed.
Naturally, every HOA (or "homeowners' association," as they like to be called) has a different list of maintenance items that it will take care of, which is why you will want to make sure that you and your neighbors are on the same page regarding who is responsible for what in the yard. However, the homeowner's association (HOA) would probably prefer it if you kept your flashy red hot pokers (relax, it's a flower) and bright pink window shutters away from the beautifully manicured front lawn.
Never Leave the Compound
You get the community that the townhouse is located in along with the purchase of the townhouse, and that community has amenities. The majority of townhouse communities include amenities such as a fitness center, a swimming pool, a laundry room, tennis courts, and even a recreation room that residents can sign up to use for private events.
Imagine that you live in a townhouse community that does not have any of these amenities, such as tennis courts, despite the fact that you are convinced that you are destined to become the next Roger Federer or Serena Williams. (You aren't, but for the sake of argument, let's go with the example.) Many communities that are comprised of townhouses allow the owners to combine their funds in order to construct these amenities, provided that there is sufficient space on the property for the construction of such features.
In legal terms, as the owner of a townhouse, you are granted a share of ownership in each of the shared amenities. If there are 50 units in your development, this means that you own two percent of the space in the laundry room. If you want to imagine that one of the sofa cushions in the recreation room represents your two percent, you are free to do so; however, you should be aware that virtually no one else in the development will share your perspective.
Keep Your Cash
In the real estate industry, free-standing houses are referred to as single-family homes. Single-family homes are typically more expensive than townhouses. You should be aware that once you buy a townhome, you will be responsible for paying both a mortgage and HOA fees, whereas your friends who live in regular houses only pay the mortgage. But do you know what else they get in addition to that? A garden overrun with weeds, a driveway buried under snow, and a ceiling riddled with holes. Who wants to join a HOA these days, huh? To assist you in constructing the home of your dreams, MJS Construction Group offers the widest variety of dual occupancy builder services available.
Townhouses are typically multilevel buildings that share a side wall or two with an adjacent townhouse; however, this is not always the case. In the same manner as a single-family dwelling, they may have any number of bedrooms and bathrooms that can be accommodated by the floor plan. They may be located in close proximity to the heart of the city, or they may be situated further out in the suburbs, amidst vineyards or forests. The point is that you can get a lot of the same stuff that you can find in a regular house in a townhouse, but you will typically pay a lot less for it than you would in a regular house.
If you are willing to share a wall or two, you may be able to find better items in a townhouse; however, this is only the case in some cases. Because townhouses are typically built more recently than single-family homes that are currently available, the floors and walls do not have a funhouse-like slope to them. Granite countertops and high-end stainless steel appliances are examples of the luxurious upgrades that are sometimes already installed in townhouses. Other examples include hardwood floors, eco-friendly materials like cork and bamboo, and eco-friendly materials like bamboo and cork.
Keep Tabs on the Neighbors
We have a townhouse benefit just for you, Nosy Nellie, so why don't you come on over? Because the units are close to one another and the parking areas are frequently shared, you will be able to sit by the window and watch people come and go throughout the day and night. One more way to cut costs is to forego watching television in favor of keeping an eye on the neighbors. You are free to cancel your cable subscription.
The fact of the matter is that being a little bit of a Nosy Nelly occasionally is to the advantage of the neighborhood. The fact that a community of townhouses exists means that neighbors are more likely to know one another and, as a result, are more likely to notice if a new person is prowling around wearing a black eye mask and carrying a canvas bag over his shoulder. When Nosy Nellie puts the empty glass between the wall and her ear, she is more likely to be suspicious of noises coming from next door if she knows that her neighbors are not home at the time.
In addition, the real estate agent Joan Rogers states that "many developments have rental caps as far as how many units can be rented out at a time," giving the example of ten out of the fifty total units in the development. However, renters do not have as much of a stake in the development as owners do. Because there is less turnover, the neighborhood is more stable, and Nosy Nellie is more aware of who to greet with a friendly smile and who to give the stink eye to. And if there are more frowns than smiles, there is always the homeowner's association (HOA) to argue with about the renters.
Have the Neighbors Keep Tabs on You
If someone is elderly or, as Ms. Rogers put it so delicately, "medically fragile," having a Nosy Nellie listening at the wall isn't such a terrible idea for those people, either. She made the observation that "there can be a real advantage to having neighbors close by, while not being in a'retirement home,' and still having the advantage of building equity," despite the fact that she was not living in a retirement community.
Less time spent maintaining your yard, on-site exercise and laundry facilities, and the comfort of knowing your neighbors when something goes wrong are all significant advantages of apartment living. Or a big mishap. Townhouses ensure that there is likely to be someone nearby the majority of the time to assist you, regardless of how significant your typical accidents are.
That is useful advice for frequent travelers as well. They will keep an eye and an ear out for your place if you let your immediate neighbors and the resident Nosy Nellie know that you will be gone for a month and give them advance warning. When you return, the yard won't be a tangled and overgrown mess like it was before. However, I would ask that you please bring something small for Nellie. She contributes a great deal to the neighborhood. Perhaps a more elegant crystal glass that she could place between her ear and the wall would help.
The Disadvantages of Living in a Townhouse
There are advantages to calling a townhouse home, but there are also reasons why people decide to purchase single-family homes instead. With that being said, let's take a brief look at some of the disadvantages of townhomes.
The fact that you and your neighbors on either side share a physical wall is frequently cited as one of the most significant drawbacks associated with townhouses. This might not be a problem at all, but if you live next door to people who are, for lack of a better word, impolite, it might become one. Your little backyard will not be nearly as private as it would be in a typical neighborhood that has a lot of landscaping and plenty of space between the lots.
Depending on the neighborhood, the homeowner's association (HOA) may place very stringent limitations on the kinds of alterations that are permitted both inside and outside the house. If you are the type of person who enjoys making improvements and keeping up with the latest trends, this may stifle your creativity and severely restrict your options.
You might think that the process of obtaining financing is the same no matter what kind of property you're looking to purchase, but this isn't always the case. It is possible that your mortgage provider will view a townhouse purchase as more comparable to purchasing a condo than a single-family home.
"The decision made by some lenders to treat all townhomes in the same manner as condos results in increased costs for buyers. Some of these have more nuanced recommendations, "elucidates Gregory Erich Phillips, an industry veteran with extensive experience in the mortgage sector. "It is a good idea to look for a lender who has experience in the area in which you plan to buy a townhome, especially if there are a lot of townhomes in the area. You could even talk to the other people who own the property to find out who they got their financing from."
When you buy a townhome, you might get a fantastic deal on it, but if you ever decide to sell it, you might have to give the same amount of discount to the buyer as you did when you bought it.
According to what an expert on personal finance named Neil Kokemuller has written, "Resale values on townhouses sometimes lag behind values of single-family homes in certain markets." "This is especially the case in localities that have witnessed an increase in the number of condominiums and townhouses becoming available at the beginning of the 21st century. Some home builders create developments that are virtually identical to those that have already proven to be successful in the same general vicinity."
On the other hand, townhomes are typically simpler to rent out than single-family homes are. [Citation needed] When you do make the decision to buy it again, you might be able to rent it out and pick up some additional stream of income from doing so.
Is Buying a Townhouse a Good Investment? – The Pros
When considering the costs, it is a wise decision to purchase townhouses with the intention of using them as rental properties. In almost every region of the United States, the purchase price of a row house can be expected to be significantly less than that of a single-family dwelling. Townhomes can be a good investment choice for those who have a smaller financial cushion to work with.
Rental Property Management: The property manager of a townhouse complex is responsible for maintaining each individual unit in the complex. Because of this, you will never have to stress about the management of your rental property, which makes this situation ideal for you as an investor in real estate.
Maintenance: Because you are required to pay a monthly maintenance fee, the association that is in charge of the complex will take care of any necessary maintenance that is required on the rental property. However, despite the fact that you will still be responsible for some maintenance, the association will take care of a significant portion of the work.
Excellent Location: When considering the location, is the purchase of a townhouse a wise financial decision? The short answer to that question is yes! Townhouse communities are frequently situated in desirable locations, close to a variety of amenities as well as schools and public transportation. When you are trying to rent out the property, this will be a huge asset for you to have.
When looking for an affordable option to purchase a single-family home, you may have to make some sacrifices in regard to the age of the home; however, this is not typically the case when looking to purchase a townhouse because they are frequently updated. You can frequently find townhomes with very modern designs and features that are appealing to potential tenants for a price that is much lower than the market average.
Rental Income: Townhouses offer the possibility of bringing in a significant amount of rental income. They are common among families who want housing that is both affordable and comes with enough space around the house for their children to play. A townhouse investment can provide a reliable source of rental income, which can lead to a healthy return on investment for the investor. It is critical to make the best choice possible when constructing a duplex. At MJS Construction Group, we have a wide variety of the very best home design constructions for you to look through.
Is Buying a Townhouse a Good Investment? – The Cons
- Paying Maintenance Fees: It is never a pleasant experience to have to pay maintenance fees; however, having someone else take care of the building's maintenance is a significant benefit. There are times when the fees are high, and they frequently go up, sometimes by a significant amount, with little to no warning.
- Loans for Real Estate Investments The process of obtaining financing for an investment in a townhouse may be more challenging than you initially anticipated. When it comes to investing in townhomes, even brand new ones, financial institutions are much more hesitant to provide investors with real estate investment loans.
- Appreciation FAIL: Sadly, making money in real estate is about more than just the rent you collect. The amount that the investment property can be sold for is going to be a significant factor in this equation. When looking at townhomes, you should keep this in mind because it is notoriously difficult to add value to these types of properties. It's possible that townhouses won't appreciate nearly as much as detached single-family homes, or even at all. When you sell the property, your potential return on investment may suffer as a result of this issue.
- You are required to comply with the regulations because the townhome you own is located within a complex. This means that you will be restricted in the ways in which you are able to rent out your property. It's possible that you're looking to invest in townhomes so that you can rent them out via Airbnb. However, depending on the complex that you buy into, this may not be an option for you at all.
When it comes to making money in real estate, doing the appropriate amount of research is absolutely essential. When it comes to purchasing a property for investment purposes, the guidance that was provided above is just the beginning for you. Now it is your turn to gather information about purchasing townhouses for the purpose of renting them out. Begin your search by going online and entering phrases such as "townhomes for rent near me," "how to find an investment property," and "rental property calculator." When it comes to learning how to find an investment property, these searches will help you in a variety of different ways.