If you're looking to add a piece of real estate to your investment portfolio, it pays to consider a townhouse. Townhomes are generally less expensive to buy than stand-alone homes, and many of the homeowners associations that govern townhouse communities are amenable to letting owners rent out their units to generate income.
But if you're going to purchase a townhouse, you'll want to go about it strategically. Here are a few tips to employ.
1. Look for a corner unit
The one major drawback to living in a townhouse is having neighbor noise to grapple with. That's why it pays to invest in a corner unit. That way, your townhouse will only have one shared wall with another unit instead of two. That, in turn, is apt to make your unit more appealing from a tenant perspective -- and could result in higher rent. Furthermore, a corner townhouse unit could mean a larger backyard. Townhomes in general tend to have small private outdoor spaces, so a larger yard could appeal to a family with children in particular.
2. Focus on location
As is the case with any property you invest in, the right location is key. When buying a townhouse, look at communities that are located near good schools, shopping, and, if applicable in your city, public transportation. You may also want to look at communities near business districts -- a short commute may hold a lot of appeal for renters.
3. Pay attention to amenities
Some townhouse communities offer a wide range of amenities, like swimming pools, playgrounds, and clubhouses. Others are more bare-boned. Think about the types of tenants you're trying to target to buy your townhouse, as that will help dictate what amenities you should go after. If you're aiming to attract families or retirees, you'll want some sort of onsite entertainment, like tennis courts, a playground, a pool, and a gym. If you're looking to cater to young professionals near a busy business district, you may want to focus more on larger units than amenities your tenant may be too busy to use.
4. Aim for lower HOA fees
When you own a townhouse, you're typically looking at monthly homeowners association (HOA) fees that can range from modest to expensive. The lower those fees, the easier it'll be for you to make money by renting out a townhome, so do your best to keep those dues to a minimum. Of course, HOA fees are generally commensurate with the number of amenities a housing community has to offer. But before you buy, research comparable communities to make sure you're not being taken for a ride.
Townhouses have the potential to generate a fair amount of rental income, but if you're going to buy one, do some research and make sure to find the right one. In addition to tenant appeal, you'll also want to focus on properties with the potential to appreciate in value. There may come a point when you decide you're tired of renting out that home and want to unload it, so pay attention to how townhome prices in different neighborhoods have evolved through the years before landing on the right one to add to your portfolio.