Townhouse as first rental property??

Question

Hi Bigger Pockets Family,

I am interested in purchasing my first rental property and am stuck between choosing a SFH or townhome. I was pre-approved for 200,000, which is not a significant amount ESPECIALLY in my area (DMV: DC, MD, Virginia...looking in Maryland). So I am pretty positive townhomes are the most realistic option for me. So my question is:

1. What are the benefits/cons to having a townhouse rental property

2. Can you renovate the interior of a townhome? (Very real example: If I want to add a bedroom, breakdown a wall, or make the basement a 2nd suite?)

3. Although I plan to hold and rent the property, I hear townhomes don't appreciate much, so even with renovations inside, if I think about selling in the future, is there a chance I can still have equity/profit?

Thank you! If there's anything else you can think of about renting out townhomes...I'd love to hear!!!

Sam Shueh · Answer

HOA due keep it min. As for the rest it is likely non-factual. In our area most townhomes are over 1.2-1.5 M from 500K before the Great Recession. If your budget is 200K I will stay comfortable with my budget. Less maintenance with exterior. Yes, if alter structures you need HOA board approval with permits etc. Remodel no.

Jennifer A Barry · Answer

Everything that @Stacee Evans said! However, in the DMV a lot of neighborhoods with SFH's also have HOA's with high fees. Generally speaking, townhomes and condos will have higher HOA/maintenance fees so you might have a hard time generating good monthly cash flow. HOA's can also be a giant pain when it comes to renovations depending on the renovations you're doing (inside vs. outside, for example) and that particular association's rules.

Another thing to consider is comparing the tax situation... Of all three options, Maryland property tax is highest (in additional to paying the most in overall income tax if you also work there). Virginia taxes tend to be lowest across the board so that’s where I’d purchase, but that’s just me! I’d want to keep cost down as much as possible to maximize cash flow opportunity. (If COVID weren’t a thing, I would have recommended finding a place near George Mason Univ. and renting to students.)

Stacee Evans · Answer

A big advantage of a SFR over a townhouse is the HOA. I have heard horror stories of mismanaged HOA associations and often times the fees are so high that it's not a good deal. A townhouse will typically have less maintenance depending on what the HOA covers and often can have extra amenities that you're not responsible for which can make it attractive to the tenant. Appreciation is fantastic, but it's not something you can count on, so just make sure the numbers work without counting on appreciation.

Townhouse as first rental property??

3 Replies