Are Townhomes Bad For Rentals?

Question

Hey! I've only been looking at SFR in the metro Atlanta area for my first buy and hold rental purchase, but recently came across a townhome that looks interesting. It's down to the studs(looks like someone ran out of cash on their rehab), so it would need a pretty good rehab to get it up to speed. I haven't heard much about townhomes as rentals.

Are they a bad idea from an investment standpoint? I know you have to consider HOA fees in your monthly costs but are there any red flags with these? The property is right by the Atlanta airport, which has a great AirBnB market, so I'm thinking maybe that's a route to take for rent income.

Any thoughts/experience on renting a townhome?

Michael Noto · Answer

@Hayes Mercure Along with the monthly fees make sure to get a good picture on the financial health of the HOA as a whole. Do they have the proper insurance, are there any big assessments looming, is there a restriction on the number of non owner occupied units, etc?

Andrew Turner · Answer

Depending on the area, Townhomes can be just as, if not more, profitable than traditional SFR. In most cases, the HOA will cover some of the expenses that you would typically need to account for in SFR. Do you know if the roof, landscaping, etc. is your responsibility? As far as your occupancy strategy, Atlanta has a great AirBnB market. If the DD you've done thus far supports it, I would take that route all day. Its gaining a lot of traction around the city. There is a ton of development going on around Hartsfield-Jackson right now, with the Aerotropolis plans and more. I would get in while you can. Worst case scenario, you lease it to a traditional tenant and let the property appreciate over the next several years. How much rehab are you anticipating for the project? I work with a number of investors as an agent selling distressed property, so if you were to need help pulling comps, connecting with contractors, or anything else regarding the project, I'd be happy to help. Best of luck!

Nathan Gesner · Answer

My first investment was a townhome and it was a great investment. One of the big concerns is the strength of the HOA. If they maintain the property and enforce the rules, it protects the value. if they don't, the value can drop dramatically. In my opinion, you also want to avoid buying  a townhome that has a high percentage of rentals. Try to find something that is primarily owner-occupied as this will help protect property values.

Hayes Mercure · Answer

@Andrew Turner Thanks, man! Great insight and I appreciate your response.

Mike McCarthy · Answer

Be sure to get your hands on the HOA rules too. There are some that are quite reasonable, and others are rather strict, require HOA approval of renters, only allow a certain number of rentals, etc. you want to be sure you know what you’re buying into.

Nik Moushon · Answer

One thing that most people dont think of looking at with Townhouses is the roof. The thing you need to look for is doe each TH have its own separated roof or does it share a roof with either of the neighboring TH? This is more common in older TH than newer ones but sometimes developers go the cheap route and make and start combining roofs. The reason this can be a pain is that when you go to replace or repair a roof that crosses property lines it becomes a total PITA. You have to get permission from the neighbors for roofs to walk on their roofs, you have to tare up some of their roof (a very very small amount but still some), if theres water damage on the sheathing that crosses over the property line do you force your neighbor to fix his portion or do you take the hit and pay the extra when they refuse? Then theres the aesthetics of it clearing looking like a patch job. Some people wont think this is a big issue but personally I would have to really think hard about purchasing a TH that shares roofs. Unless I can confirm the age of the roof and thats its fairly new so I have time to build up the CapEx for it. Other than that I think, as other have stated, the HOA is your biggest hurtle. Hoping they don't change the rules to out-law STR is really your biggest potential problem. I've lived in a TH community that the HOA only regulated the common spaces (play ground and grass areas) and had no control over the individual units. Basically being treated like a SFH that was not in an HOA. I doubt that is very common but its out there.

Hayes Mercure · Answer

@Michael Noto That's great info to consider. Thank you!

Are Townhomes Bad For Rentals?

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