Is Buying a Townhouse a Good Investment?

December 19, 2018
Posted by: @dmin
Category: Uncategorized

A recent article by The Globe and Mail asked if townhouses could drive real-estate growth in the Greater Toronto Area (GTA). With detached homes growing increasingly expensive, and condos being too small for families, analysts believe the GTA is due for a phase of new townhomes.

“I think this year (2018) is the bottom. We’re going to see more product being released over the next few months in general,” said Patricia Arsenault, a senior economist and Altus Group’s Executive Vice President of Research Consulting Services (to The Globe and Mail).

Be it as an investment for a home or as rental property, you’re probably interested in gauging if townhouses are the way to go with your hard-earned capital. In Calgary, townhomes are quickly becoming “an increasingly popular option for would-be buyers” due to affordability.

So, does a townhouse make sense for you?

Is a Townhouse a Good Investment for a Home?

Before continuing, it’s important to get a good grasp of exactly what is a townhouse. Yes, it’s a house attached to a row of other houses, but there’s much more to it than that alone.

We discussed it in detail in an earlier article, but the general idea is that with a townhouse, you could pay maintenance and amenity fees while also being accountable to rules that would not apply to you if you owned a detached or semi-detached house.

With this in mind, let’s take a look at the investment value of a townhouse from the perspective of someone planning to live in one (we’ll look at it as a rental property below).

What’s the Cost of a Townhouse?

In general, townhouses cost less to purchase than single detached houses, but the actual price figure will vary depending on the townhouse’s size and location.

For example, the average cost of a townhouse in the GTA is $840,000, while in Edmonton and Calgary it’s $315,000 and $325,000, respectively. So you’ll have a major capital investment at play, but it should be less than that of a detached or semi-detached house.

However, there’s more than just your mortgage. Many townhouses are a part of condominium corporations. Your costs will also involve monthly maintenance fees. Furthermore, those fees could potentially increase through the long-term.

Do Townhouses Make for Good Homes?

Some might prefer the more regimented environment of a townhouse community.

The area around your home would be kept in good condition and will be safe for you and your children. Moreover, the monthly maintenance fee you pay can go into regular trash collection, landscaping, de-icing, removing snow, and other valuable conveniences.

You would basically get a space that’s bigger than a condo, but with the convenience of a condo in terms of day-to-day upkeep. However, like a condo, you will also a bit of freedom in regards to how you can manage your townhouse.

For example, while you have ownership and control of the interior space, you may not have that level of control over the exterior walls or windows. This may restrict you in terms of the changes or renovations you could make to your home.

Speaking of the long-term, you might be curious about whether your prospective townhouse will rise in value — i.e., appreciate. This is difficult to judge. In earlier years, townhouses appreciated faster than condominiums, but this has not been the case for 2018. But this could change in 10 to 15 years, especially as demand for lower-cost housing such as townhouses increase.

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Good Investment as Rental Property?

While rebounding, housing sales are still less frequent than they had traditionally been in earlier years. As noted in our article about the top 5 housing trends for 2019, this is driving up demand for rental units. So, is there an opportunity here to invest in townhouses for renting out?

Return-on-Investment (ROI) Potential

According to the Toronto Real Estate Board (TREB), the rental rates for townhouses increased year-over-year (YoY) between Q3 of 2017 and Q3 of 2018 by an average of 5.2%.

The greatest increase was seen in the average rental rates of two-bedroom and three-bedroom townhouses at 8.3% and 8.0%, respectively. This indicates that family-oriented townhouses are the way to go (bachelor-sized townhouse rental rates declined by 35.9%).

In general, townhouses have a lot of the right elements that make them attractive for tenants, such as having enough space for children, convenience (e.g., trash pick-up, snow shoveling, etc), amenities such as a common swimming pool or playground, and privacy.

The median household income for persons in the GTA aged 25-34 is $69,710 per year. If we look at this as an indicator for young families, then lower-cost housing, especially rentals, are the way forward. While condos are benefitting the most from rising rental demands, it is likely townhouses will follow due to them being lower-cost than detached or semi-detached houses.

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