Townhome as first investment property?

Question

Hello everyone at BP! My name is Chad Simmons and and I’m a new investor in the Orlando area. My girlfriend and I are looking at townhomes as our first investment property. Rent by room for a few years then move out and rent to a family is the plan.

Townhomes are unique because they offer lower price points that are in my budget. They are also usually move in ready and up to date. However, the dreaded uncertainty of HOA fees and their volatile nature in the market scares me a bit.

If the numbers appear to work, are townhomes a good starting investment property? Or should I stick to a SFH ?

Thanks for the advice in advance!

Tyler Gibson · Answer

@Chad Simmons If the numbers work then I see no reason not to. That being said you mentioned that you would rent rooms, This may be an issue due to HOA rules. Many HOA's frown on that sort of thing so be sure that you read the HOS rules very carefully before buying if that is your strategy. I own a SFH in a HOA neighborhood and my wife and I started talking about doing AirBnB with one of our empty rooms but found that the HOA did not allow it. So be aware of all the HOA rules before making the jump or you may end up with something that doesn't work anymore.

Chad Simmons · Answer

@Andrew Ashby Thank you for the advice!

Andrew Ashby · Answer

@Chad Simmons, like others have said, it's all about your goals and strategy. As with everything, there are trade offs. Yes, there are significantly higher HOA fees with townhouses and condos since you're outsourcing exterior responsibilities. They also have higher risk of special assessments. Also, be mindful of leasing restrictions that are community specific including "leasing out in part" which is what you're looking to do initially with the bedrooms.

Chad Simmons · Answer

@Tyler Gibson Thank you for the advice! This will actually help me easily screen out townhomes if they’re strict on renting or don’t allow the properties to be rented at all.

Chad Simmons · Answer

@Corey Hawkinson I'm glad to hear your first investment property is doing well for you! It is reassuring knowing others have had success going down a similar path. I appreciate the insight and best of luck in your future endeavors.

Corey Hawkinson · Answer

@Chad Simmons My first investment property was a condo. It has worked out very well for me. I’m looking to either sell it (1031 exchange) or refinance sometime in the next 2 years to purchase a larger property.

As someone else mentioned, make sure the HOA allows rentals. They can be great investments that require less work compared to SFH. You do pay for that through the association fee though.

Chad Simmons · Answer

@Ronan Donnelly this is true. Certainly, there are pros and cons to every investment strategy out there. I love the mindset though! Thanks for the advice.

Chad Simmons · Answer

@Ralph Justiz Thanks for the response! I really do appreciate the helpful insight.

Ronan Donnelly · Answer

@Chad Simmons, you can make whatever strategy you select work by focusing on education, networking, risk identification and mitigation and of course action. Every investment has it's con's but they don't have to be a showstopper. Good luck

Ralph Justiz · Answer

My first rental was a townhome. It's been great. Luckly, our neighborhood does not have an HOA. I have heard several horror stories when dealing with HOAs and have made it a priority to avoid them at all costs. From the sounds of it you do not have that luxury. My best advice would be if you do purchase a property that has a HOA, try and be involved as much as possible.

I have a family member who recently retired and became the president of three different HOAs in Florida within the same year. He is constantly telling me stories of all the changes he is making to the HOAs and how "corrupt" they used to be. One the brightside because he is so involved he has had several opportunities to purchase properties within these neighborhoods. The residents recognize his hard work and have often given him the chance to purchase properties before the are listed on the market.

Edit: Before purchasing in an HOA you will want to check and see if they allow rentals in their neighborhood. Some do not or only allow a certain percentage of the houses in the area to be rentals.

Townhome as first investment property?

Most Popular Reply