Ever wondered if a townhouse is a good investment property? The answer comes down to your overarching investment strategy and whether a townhouse will fit into your portfolio.
To help your decision-making process, we have weighed up the general pros and cons of investing in a townhouse.
In this article, we will cover:
- The pros of a townhouse investment property
- The cons of a townhouse investment property
- Townhouse depreciation
- Low maintenance
The maintenance levels of a townhouse is a balance between the levels required for a house and a unit.
Townhouse yards are often simple courtyards, smaller than those of detached houses. They provide a style of low-maintenance living for your potential tenants, which adds convenience to your rental listing.
- Tenant market appeal
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.
However, it’s still important to research the local market before investing in a townhouse. Even if it technically ticks all tenant-demand boxes, market supply and rental rates need to be considered.
The price of a townhouse can be more suitable for your budget compared to a house in the same area.
If you compared a townhouse and detached house in the same area, that of the same size and age, you will find the townhouse sits in a more affordable price-range.
- Common property depreciation
Depreciation can be claimed on a property and its assets. Townhouse investors can claim this on their townhouse’s structure, fixed assets and other assets they own in the property such as kitchen appliances.
But they also have the added benefit of claiming depreciation on eligible common property items. This can include things like garbage bins, security cameras and the driveway that links the townhouses.
- You’re part of a strata scheme
Being part of a strata scheme can limit what and how you can do updates to the property. For example, if you’re wanting to make an improvement to the property you need to go through the strata approval process.
This is more of an issue if you’re wanting to make the property your own home. But when you are just making improvements to the property to fix repairs while it’s an investment you will find that there are less road blocks in the strata approval processes.
- Lower rental potential
When compared to freestanding homes, townhouses often have lower rental returns.
However, this lower rental potential can be offset by other things like lower maintenance costs and a lower purchase price. It’s important to consider all these factors in your purchase and how they will impact your cash position.
- Resale values
Historically, townhouses experience lower levels of capital growth compared to houses in the same area.
Capital growth is one of the most important ways investors make money from their investment properties. Property market waves constantly change what the capital growth outlook is, so it will be important to keep an eye on this during your townhouse ownership cycle.
We mentioned common property depreciation earlier, but it’s important to understand just how much depreciation you can claim from a townhouse.
The following case study demonstrates the depreciation deductions you can expect from a new townhouse investment.
- Townhouse depreciation case study
Pete purchased a brand-new townhouse as an investment property in 2021. The property was located in Sydney and had a floor area of 200 square metres.
Following the purchase, Pete organised a tax depreciation schedule. From this, he found out he could claim a first-year depreciation deduction of $15,400 and a cumulative five-year deduction of $65,100.
To learn more about depreciation and how it can make investing in a townhouse more affordable, contact BMT on 1300 728 726 or Request a Quote.