More and more real estate investors are turning to townhomes for rent as a real estate investment, and there are plenty of good reasons why. At the same time, however, real estate investors need to be educated on townhomes for rent because there are a lot of factors that can turn them from a good real estate investment to a really bad one.
Be a real estate investor who succeeds in investing in townhomes for rent by finding out the answers to these real estate questions:
What is a townhouse?
What should I consider before investing in townhomes for rent?
What are some benefits of investing in a townhouse for sale?
How can I choose the right townhomes for rent for good investments?
“What Is a Townhouse?”
It is important that a real estate investor has a clear definition of a townhouse for sale, which you might think is simple. However, because of its characteristics, a lot of investors confuse townhomes for rent for other properties like detached single family homes or condos.
Townhomes for rent, also called row houses, are technically single family homes. The difference with this type of investment property is that townhomes for rent share at least one wall, if not two, with another townhouse. So, tenants in townhomes for rent will have neighbors on either side of them, but never above or below. Each townhouse for sale, however, is individually owned.
Typically, row houses are built more narrowly than a detached single family home. They tend to have two or three floors. How townhomes for rent are arranged in a townhouse complex can differ depending on the location they are built in. Looking at the characteristics, townhomes for rent are a mix of condos and single family homes. That is why it is important to define townhouses clearly before investing in them.
“What Should I Consider Before Investing in Townhomes for Rent?”
Financing Townhomes for Rent
Real estate investors who try to finance townhouses for sale can run into some difficulty, as compared to financing detached single family homes. The major reason for this is that lenders have issues classifying as well as appraising row houses. A lot of the time, lenders treat row houses the same way they treat condos. Unfortunately, this means more restrictions along with a more expensive mortgage when financing townhomes for rent.
Tip: Find a lender who has experience financing townhomes for rent. You can do this if you choose a location with many row houses. Also, consider consulting a real estate investor who is familiar with investing in townhomes for rent. Ask him/her what lender he/she has turned to.
Lenders also take a look at the townhouse complex when dealing with real estate investors. They have restrictions on how many renters are in the row houses compared to owner-occupiers. If there are fewer owner-occupiers in the townhouse complex, lenders may refuse financing all together for a real estate investor.
Tip: Shop around for lenders when looking for financing for row houses. It is possible to find a lender whose guidelines are less strict. You can also look for a townhouse complex that has fewer real estate investors who own the townhomes for rent.
If a real estate investor is looking into an FHA loan for a townhouse for sale, it might be even more difficult to qualify than for a conventional bank loan. This is because FHA has a clear requirement: any townhouse complex with renters making up 50% is refused financing.
Many townhomes for rent will have a Homeowner’s Association (HOA). With an HOA come fees because it takes care of many aspects of the row houses: exterior maintenance of the investment property, landscaping, trash pickup, shoveling snow, etc. The HOA will also pay for exterior insurance. A real estate investor has to plan these fees into his/her real estate investing budget. This will allow a real estate investor to determine if the townhouse for sale will get a good return on investment and decent cash flow, despite this expense.
Tip: Look for townhomes for rent with cheaper HOA fees. While you may be able to afford the high HOA fees, lenders consider how they lower the value of an investment property. Therefore, high HOA fees can mean bad financing for a real estate investor.
Similar to the restrictions lenders have, an HOA for townhomes for rent only allows a certain amount of renters in a townhouse complex. As a real estate investor, you need to have this information before investing in row houses to ensure you will be able to implement your investment strategy.
Another thing to consider when it comes to HOA fees for a townhouse for sale is the idea of fixed fees. While a real estate investor might choose a townhouse for sale and factor in the fixed HOA fees, these fees are subject to change. If an HOA needs extra money for special assessments or is running low on cash reserves for repairs, it can decide to increase the fee. A real estate investor has to keep this in mind for future expenses on the investment property.
Related: The Best Real Estate Investing Tips for Cutting Down on Your Expenses
Many real estate investors turn to detached single family homes over townhomes for rent because of the appreciation. It’s true, row houses don’t appreciate as much as other types of investment properties. This is because it is generally the land that single family homes sit on that appreciates. As they have more land than a townhouse for sale, single family homes appreciate more.
While real estate investors shouldn’t invest based solely on appreciation, it is important to consider when choosing an investment strategy. If you plan on buying and holding your investment property for appreciation, townhomes for rent are not the way to go.
Although many real estate investors believe a townhouse for sale won’t appreciate, it will. It will just appreciate much more slowly than a single family home.
Tip: Focus on positive cash flow and a good return on investment rather than appreciation. Mashvisor can provide you with this information to help you choose the best townhouse for sale.
Related: Is It OK to Invest in Real Estate Just for Appreciation?
“What Are Some Benefits of Investing in Townhomes for Rent?”
Townhomes for rent can make for a great real estate investment opportunity, and real estate investors have a choice of different townhomes for rent in some of the best real estate markets. In fact, row houses make up about 5.6% of the US housing market. Let’s take a look at some of the major benefits of investing in townhomes for rent:
- Real estate investors can usually find a townhouse for sale that is cheaper than most single family homes. This is because row houses are cheaper to build and are less in demand.
- Townhomes for rent are popular because they are usually located near downtown centers. Single family homes are rare in these areas and more expensive.
- The HOA allows for lower maintenance for a landlord and because of everything they cover expense wise, certain things are cheaper for a landlord.
- Because of the low maintenance, real estate investors can enjoy passive income from townhomes for rent.
- Townhomes for rent provide privacy and security. Neighbors are close enough in row houses to keep an eye on one another but still enjoy private entrances and land.
- Real estate investors can find a townhouse complex with great amenities like a common pool, tennis court, clubhouse, or playground.
“How Can I Choose the Right Townhomes for Rent for Good Investments?”
In order to choose the right townhouse for sale, you need to know the type of tenants you’ll be looking at. Tenants of row houses typically fall into two categories: young couples looking for a starter home or older couples looking to downsize. Keep these in mind as you look for a great townhouse complex.
Tip: Because townhomes for rent attract older couples, look for a townhouse that has stairs that are convenient to climb, without too much trouble.
There are a few things unique to townhomes for rent that will make them more appealing to tenants. Hardwood floors are a typical feature of a townhouse for sale, so if the one you’re considering doesn’t have that, avoid it. Make sure these floors are not creaky when walked on.
Look for townhomes for rent with three bedrooms and extra rooms for living rooms for families. Focus on great interiors that have been upgraded and are modernized as most tenants looking to live close to urban centers prefer this.
Make sure the row houses have natural lighting as tenants look for this when choosing townhouses over condos.
Related: Real Estate Investing: How to Find the Best Investment Property
If you’re looking for your next real estate investment, townhomes for rent are a great option. Real estate investors can spend less initially and still enjoy a passive income. You will have no short supply of tenants and no real issues with maintenance. As long as you approach townhomes for rent sensibly, you can succeed with this type of investment property.
Wondering where to find the best townhomes for rent? Visit Mashvisor today for real estate listings from across the nation.