Is Buying a Townhouse a Good Investment?
Are you looking to diversify your investment portfolio with a property with a solid rental yield and potential for capital appreciation? Buying a townhouse for investment presents a unique opportunity for investors, balancing affordability, low maintenance needs, and strong rental demand.
Join us as we look at the growing popularity of townhouses in New Zealand and why a townhouse as an investment property could be a wise addition to your portfolio. But first, let’s define what a townhouse is and how it differs from other apartments and houses.
What is a Townhouse?
Townhouses are multi-storey residential dwellings. They typically have modern amenities like open-plan layouts, ensuite bathrooms, and smart, built-in storage.
Unlike freestanding houses, townhouses share at least one wall with neighbouring units. However, they generally offer more privacy than apartments do, with private entrances, yards, and decks.
Where are the Townhouses Being Built?
Townhouses have become increasingly popular in New Zealand to meet the growing demand for affordable housing. Townhouses provide a practical solution for the rapidly growing populations and limited land availability in our major cities:
Auckland
Auckland Central, the North Shore, and the Waitakere area have all seen a massive increase in townhouses built to align with the rapidly growing population. These new developments in Auckland offer plenty of opportunity for investors.
Wellington
The inner city and its surrounding suburbs, like Miramar and Newtown, have seen a noticeable increase in townhouse developments. These developments offer a range of affordable new homes for first-time buyers.
Christchurch
First home buyer new builds and plenty of townhouses have been included in the city’s redevelopment efforts in areas like the city centre, Merivale, and even growing suburbs on the city’s outskirts, aiming to meet the demand for housing.
Key Considerations When Buying a Townhouse for Investment
By carefully considering the following factors, you can make a more informed decision about whether buying a townhouse is a good investment for your portfolio.
Rental Yields
Estimating potential rental yields is vital before securing a townhouse investment property. Rental yields are a top factor to consider when looking for a townhouse to invest in. Rental yields are the income generated from rental properties relative to the property’s value. Location, property condition, and market demand all influence rental yield.
Desirable neighbourhoods, well-maintained homes with modern features and amenities, and a growing demand for housing all contribute to the rental yield. Investing in a townhouse in a desirable neighbourhood and keeping it well-maintained can offer great returns.
Capital Growth
Considering capital growth will help you understand how the property’s value will appreciate over time. Historical trends can provide insights into potential capital growth, but other factors, such as economic conditions, infrastructure development, and supply and demand, can impact future growth.
A strong economy with low interest rates and job growth tends to contribute to property value appreciation, making a townhouse a good investment. However, a shortage of housing supply relative to demand can lead to increased property prices.
Property Management
Effective property management helps maximise rental income and minimise risks when buying a townhouse investment property. While managing a rental property yourself can save on management fees, it requires time, effort, and expertise you may not have.
Professional property management can benefit your townhouse investment property by screening tenants, ensuring reliable tenants, managing maintenance and repairs, and handling rent collection and tenant relations.
Pros of a Townhouse Investment Property
Lower Maintenance Costs
Understanding the maintenance costs is important when buying a townhouse for investment. Because townhouse units typically share roofing, driveways, and other common areas, individual maintenance costs are generally lower than those of a standalone house. A body corporate or residents association is typically responsible for maintaining these areas.
Plus, with their smart space-saving design, townhouses generally require less interior and exterior maintenance due to their reduced footprint.
Strong Rental Demand
Townhouses are popular rental properties as they offer affordability and convenience. They’re typically situated in desirable locations, such as school zones with good amenities, close to parks, near the airport, and with easy access to Auckland CBD. With strong rental demand comes stable rental income. Proximity to local amenities and transportation options further enhances the potential for increased rental income over time.
Satisfied renters may even want to stay in their lease longer, reducing vacancies and ensuring stable rental income from your townhouse investment property. As the demand for townhouses grows, so does the rental income potential.
Potential for Capital Appreciation
If you secure the right location and investment strategy, townhouses can see significant appreciation in value over time, offering a potential source of capital gains. New Zealand’s strong economic growth, increasing urbanisation, and limited housing supply have contributed to a rising property market.
Townhouses, in particular, have become popular investment choices due to their affordability and desirability. As the demand for housing continues to outpace supply, especially in prime locations, townhouse values are likely to appreciate further.
Cons of a Townhouse Investment Property
Noise Levels
With the majority of townhouse developments taking place in New Zealand’s most dense urban areas, noise from the surrounding neighbourhood and noise transmission shared through walls can become an issue. However, the resident’s society rules and management efficiently manage noise levels, and most new developments mitigate this with modern features to reduce noise pollution.
Limited Control
Many of New Zealand’s townhouse developments are governed by resident society rules, limiting your control over your unit. For example, these rules may restrict renovations and modifications to the property. When buying a townhouse as an investment property, there may be limitations on building extensions, changing the exterior appearance, and altering any common areas.
Rental Market Competition
While the demand for housing remains high, so does market competition. With a large number of new townhouse developments across the country available for rent, differentiating your property to attract quality tenants becomes challenging. Building positive relationships with tenants to encourage longer-term tenancies becomes incredibly important.
The alternative is offering more competitive rental rates to attract tenants looking for similar properties. However, this doesn’t mean there’s no opportunity for great returns.
So, What’s the Verdict?
Is buying a townhouse a good investment? Well, for those seeking affordability, low maintenance, and potential for strong returns, they offer a good investment opportunity. With developments in desirable locations and growing demand for convenient living for renters, townhouses can be a valuable addition to your investment portfolio.
As with any investment opportunity, there are potential risks and drawbacks, such as noise levels and market competition. However, careful location and property selection can easily mitigate these risks.
Are you considering a townhouse as an investment property? Talk to the team at Oaks Living to discuss the investment opportunities of a new build townhouse in Auckland or explore our portfolio to learn more about our developments.
