9 Reasons Why Buying a Townhouse as a Rental Property Can Be a Great Investment

buying a townhouse as a rental property

Are you wondering about buying a townhouse as a rental property?  

Investing in real estate is still a tried and proven property investment strategy. It’s almost rock solid. Property prices fluctuate, as does any market, but property tends to increase in value, particularly in growth suburbs. 

This means that a townhouse development such as a dual occupancy can be a solid investment choice for the discerning landlord. There are also several reasons why a townhouse may be better than a standalone house. 

This helpful article will explain nine reasons why buying a townhouse as a rental property can be an excellent investment, whether it’s an existing or an off the plan townhouse.

By the end of the article, you’ll be able to decide whether or not it’s the right strategy for you and your financial goals. 

If you’ve already decided to buy a townhouse, these are the questions you need to ask. And if you aren’t ready, here are some real estate motivation tips to help get you fired!

If they don’t work, learn how you can make money through the rentvesting or consider getting expert help with a property investment consultation.

1. Cheaper Rent – More Desirable

townhouses cheaper

Landlords will often lease a townhouse out for slightly cheaper rental rates than a standalone house. 

This means that renters often demand townhouses, particularly younger people such as students or young families just starting out in life. 

Furthermore, townhouses can often be sought after by retirees who are looking to downsize their homes once the kids have grown up and moved out. Some retirees rent into retirement, so a townhouse is an in-demand property. 

Now, the rent is not that much cheaper and not worthwhile. Often, townhouse rental yields are enough to cover the cost of the mortgage repayments, repairs and maintenance to the home and any insurance policies taken out on the property. 

If you are smart with the rental income, you’ll likely see a monthly profit. 

2. Passive Income 

townhouse as a rental property

An investment townhouse provides an excellent source of passive income. Passive income is money earned without labour – you don’t have to turn up at work for it. Mainly if your properties are positively geared.

For many people, creating multiple passive income streams is a viable and effective path to generating wealth. 

Investment properties are one way to do this, as are investing in the stock market, where companies pay dividends to shareholders.

It’s great to see dollars appear in your bank account without clocking on and off at a job for them. 

Sure, some work is involved in holding investment properties; however, a property manager real estate agent can take a lot of the heavy lifting out of the equation for you for a percentage of the rental yield. 

Given the headaches of dealing with tenants, repairs and maintenance, a good property manager is worth their weight in gold. 

As a side note, I suggest learning what negative gearing is if you are unfamiliar. And also check this one out about principal and interest loans versus interest-only loans.

3. You Can Claim Depreciation Schedules  

Another benefit to buying a townhouse, particularly a new or off the plan one, is that you can claim a depreciation schedule on the home. 

You can claim depreciation on an investment property and claim it to reduce your other taxable income, such as from your employment.

A qualified and professional accountant can assist with this, but the tax benefits are real.

In addition to this, you can also claim depreciation on any appliances installed in the home, so if you put in a heating or cooling system, a dishwasher, or other appliances and fittings, these can be claimed too.

4. Buying New or Off the Plan

buy new or off the plan

One great strategy for buying a townhouse as an investment is buying brand new or off the plan. 

This is because you are guaranteed that everything is brand-spanking new. All flooring, fittings, fixtures, and finishes are sparkling and fresh. All appliances are brand new, with factory warranties if anything goes wrong. 

This means less money spent on repairs, maintenance, and works around the property. And this means more money in your pocket at the end of the day – which an investment property is all about, right? 

5. Better Than Older Homes

rental property

You might think a standalone, older home is a better investment. And while a larger house may create a larger rental yield, older homes often have many problems. 

These problems can be major pains in the you-know-what and cost an arm and a leg to fix.

For instance, take two examples: restumping and rewiring. Both are massive jobs that can cost upwards of ten thousand dollars. Both are also typical major works required for standalone homes. 

If you buy a newer townhouse, as we suggest above, or even off the plan, you won’t have these headaches that can come with existing houses.  

6. A Cheaper Entry Point 

Another reason to buy a townhouse as a rental property is an excellent idea because they are cheaper than standalone houses.

A newer townhouse can be several hundred thousand dollars cheaper than a house situated right next door. 

This cost-saving means lower mortgage repayments, which means that a townhouse may be a viable investment for someone who could otherwise not afford to enter the market. 

A smaller mortgage also means that you could pay it off sooner, and when you do, all that rental income is yours to keep. 

7. You Can Snowball Your Investments

snowball your investment

Another reason to buy a townhouse for investing is that once it has gained some equity, you can leverage that equity to make another deposit on a new rental property and then use that rental money to pay the second mortgage. 

Some people have multiple mortgages – their home and investment properties. They can service the owner-occupied property with their employment income while using the rental yields to pay off the investment properties.

Remember that tip about passive income? Well, it can snowball if you can acquire enough rental properties. 

Some people can get by in life solely on their property portfolio.  Consider a property investment advisor if you aren’t confident.

8. Capital Gains

capital gains potential

Another reason to purchase a townhouse as an investment is capital gains

As property values soar, the townhouse you purchase today for X dollars may be worth Y dollars in a couple of decades. The difference between X and Y can be hundreds of thousands of dollars.  

When and if you decide to sell up, you will see a capital gain.

Some people hold onto their investment properties until they retire, then sell for a cash injection to fund their retirement.  

9. Better than an Apartment

townhouses are better

A townhouse is also a better choice of investment property when compared to an apartment. 

They offer more living space, are less prone to significant defects that can plague apartment developments and are more common in suburban areas where renters want to live. 

They also have better rental yields than apartments and tend to appreciate more than an apartment would. This is important because selling a property is a great way to generate some serious money if you ever need a quick cash injection.  

As you can see, a townhouse is a superior choice of investment when compared to an apartment. 

In Summary 

We’ve shared nine reasons why buying a townhouse as a rental property can be an excellent investment. 

If you’re in the market for a rental property, this should give you some definite cause to investigate a townhouse further.  

It is likely a suitable choice of investment for you and your needs. 

For the various reasons we’ve detailed above, buying a townhouse to invest in may just be a good decision. 

If you still aren’t certain then check out this handy article aptly titled why buy a townhouse – in it breaks down further reasons that may just make sense for you.

And finally, if you still need some assistance, we are Melbourne’s leading real estate marketing agency – we would love to hear from you.

peter new profile

To put it mildly, Peter Kelly is enthusiastic about real estate. When he’s not looking at properties, or visiting potential sites, Peter can be found online at realestate. com. For him, it’s more than a job – it’s an obsession. Peter is a co-founder here at Little Fish Real Estate.