Are townhomes a good investment for rental properties? Learn about their features, how they compare to apartments and condos as investment ventures, which markets they perform well in, and more.

Are Townhomes a Good Investment for Rental Properties? Exploring Pros and Cons

Townhouses are a cost-effective option to enter the STR market and are an attractive choice for guests seeking both amenities and privacy.

Townhouses make up a larger proportion of Airbnb and Vrbo listings in certain markets, particularly in urban areas where they can yield higher occupancy and annual revenue compared to other property types.

HOAs, regulations, and shared walls can complicate turning your townhome into an Airbnb. 

As the real estate market evolves, investors constantly seek new opportunities to grow their portfolios and generate steady income. That search has attracted many investors to townhomes for their unique blend of affordability, convenience, and potential for rental income.

Townhomes currently represent only 3% of listings on Airbnb and Vrbo combined, but that figure is larger in some markets and could grow in 2024 as more investors consider taking the townhome plunge. 

The question remains, though: Are townhomes a good investment? Though townhomes have their allure, they also have genuine drawbacks. Understanding both is essential to deciding whether investing in townhomes suits your investment strategy. 

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A townhome, also known as a townhouse, is a type of residential dwelling that shares one or more walls with adjacent units but has its own separate entrance.

Townhome STR guests may enjoy amenities such as private outdoor spaces, attached garages, and shared community facilities. This makes them an attractive option for travelers seeking a balance between privacy and community.

Key Features Distinguishing Townhomes From Condos and Apartments

Townhomes offer a unique blend of features that set them apart from both condominiums and apartments. These include: 

Private Entrances and Outdoor Spaces: Townhomes offer individual entrances and often include private outdoor areas, providing guests with a sense of privacy and autonomy.

Traditional Layout: Unlike condominiums, townhomes typically have multiple floors and a layout that resembles a single-family home. This offers guests more space and a house-like feel.

Horizontal Arrangement: Townhomes are usually arranged horizontally in rows, as opposed to the vertical stacking of condominium units in high-rise buildings, which can be more family-friendly. 

Ownership Structure: While apartments are often rented out by a landlord or property management company, townhomes are usually individually owned. This means that townhome owners have more control over their living space and they’re responsible for maintaining their property's exterior, including landscaping and upkeep.

HOA Regulations: While townhomes may be subject to homeowners association (HOA) regulations and monthly HOA fees, owners often have more autonomy than condominiums. As an Airbnb host, this allows for greater flexibility in managing your STR. 

Gain insights into the revenue and occupancy trends in your market.

Though townhomes make up 3% of all Airbnb and Vrbo listings, they represent an even larger proportion of total listings in Mountain/Lake (4%), Mid-Size City (4%), Suburban (5%), and Urban (5%) destinations.

The top five markets with higher average monthly townhouse listings are: 

This list isn’t all that surprising, given that townhomes are more lucrative in Urban destinations/ Occupancy rates, average daily rate (ADR), revenue per available rental (RevPar), and annual revenue potential in Urban markets outpaces all other property types. Current townhouse listings in Urban destinations bring in $34,894 in average annual revenue, compared to $30,537 for all other property types.

Townhouses in Mountain/Lake destinations also perform better than their counterparts, earning $39 more per night than other property types for an ADR of $405. Mountain/Lake townhomes have an average revenue potential of $62,402 versus $57,612 for all other property types.

Investing in Townhomes versus Condos and Apartments

Townhomes also represent a better investment in terms of occupancy, ADR, RevPAR, and annual revenue potential than apartments or condos. The annual revenue potential for townhomes across the United States is $43,173 versus $38,193 for condominiums.

Townhomes, on average, net $41 higher ADRs and $21 higher RevPAR than apartments and condominiums.

The performance of townhouses varies by geographic location and housing market. Occupancy rates are higher in townhouses versus all other property types in Suburban, Small City/Rural, Urban, and Mid-Size City areas. 

The biggest difference in occupancy rates can be found in Suburban and Small City/Rural areas, where townhomes enjoy 5.4% and 3.5% higher occupancy rates respectively.

Keep in mind that the occupancy rate isn’t the whole picture, though. 

While Suburban townhomes see the largest boost in occupancy rates, they still lag behind other property types in ADR, RevPAR and annual revenue potential, so it’s important to carefully analyze all performance metrics when making an investment decision. 

Despite townhomes’ prowess in multiple markets, that doesn’t necessarily mean they’re the right asset class for you in the real estate market. However, there are some real pros to consider as you ponder whether townhomes are a good investment property choice for you. 

Townhome investments offer the distinct advantage of owning the land beneath the unit. Unlike condominiums, where land ownership is typically communal, townhome owners have exclusive ownership of the land on which their unit is built. This ownership provides added security and potential for property appreciation over time.

One of the key benefits of a townhome investment property is its potential to generate higher STR income compared to traditional apartments or condominiums. Townhomes often offer more space, privacy, and amenities, making them attractive to guests willing to pay premium rental rates. Additionally, townhomes may appeal to a broader range of guests, including families and professionals seeking a comfortable living environment.

Understand the investment potential of any address in the world. 

Lower Maintenance Compared to Single-Family Homes

While single-family homes require owners to bear the full responsibility of maintenance and upkeep, townhome investments offer a more manageable maintenance burden. Townhome owners typically share exterior maintenance responsibilities through homeowners associations (HOAs). Monthly HOA fees cover tasks such as landscaping, repairs, and community upkeep. This shared responsibility can significantly reduce maintenance costs and streamline property management for investors.

Townhomes, like other real estate assets, can appreciate over time, driven by factors such as location and market trends. Investing in townhomes in desirable neighborhoods or areas experiencing gentrification may yield higher appreciation rates. Conducting thorough research and selecting properties with strong appreciation potential can maximize long-term investment returns.

Cons of Investing in a Townhouse for Airbnb

As lucrative as townhouses can be, don’t get carried away with the revenue potential. Townhouse investing also comes with unique challenges and considerations that prospective investors should carefully evaluate before making a decision.

The involvement of an HOA can complicate any investment property, especially an STR investment. While they can provide benefits such as shared maintenance responsibilities and community amenities, they also come with monthly HOA fees and regulations that property owners must adhere to. These fees can vary widely depending on the HOA's services and amenities, and failure to comply with HOA rules may result in fines or other penalties.

Townhome investments may be subject to various regulations and restrictions beyond the HOA. Regulations from local government authorities can dictate aspects such as length of stay, pet restrictions, exterior modifications, and noise ordinances. Real estate investors should thoroughly review and understand these regulations to ensure compliance and avoid potential conflicts with regulatory agencies in their area.

While shared amenities such as fitness centers, swimming pools, and community spaces can make townhome investments more appealing, they also pose potential challenges. Investors may need to consider factors such as maintenance costs, usage restrictions due to strict HOA riles, and liability issues, all of which could impact your guests’ experience.

Additionally, disputes or disagreements among residents regarding how STR guests use amenities—and how the investor should manage them—may arise, requiring more hands-on management and resolution.

How to Determine Whether a Specific Townhouse Would Be a Good Short-Term Rental Investment

Investing in a townhouse as a short-term rental property requires careful analysis and evaluation to assess its potential for profitability and success in the rental market. Here are key factors to consider when determining whether a specific townhouse would make a good short-term rental investment in your real estate market:

Evaluate the townhouse's location and assess the demand for short-term rentals in the area. Consider factors such as proximity to tourist attractions, business districts, and amenities like shopping centers and restaurants. Research the local rental market to understand rental rates, occupancy rates, and seasonal trends in the area.

Examine the townhouse's features and amenities to determine its appeal to potential guests. Look for desirable amenities such as updated appliances, modern furnishings, ample parking, outdoor spaces, and access to community amenities like pools or fitness centers. Consider the property's layout, size, and configuration to assess its suitability for short-term rental use.

Conduct a financial analysis to estimate the townhouse's rental potential and projected income. Calculate potential rental income based on comparable rental rates in the area and occupancy rates. Factor in expenses such as property taxes, HOA fees, utilities, maintenance costs, and property management fees to determine the property's potential cash flow and return on investment (ROI).

Research any regulatory requirements, zoning ordinances, and short-term rental regulations that may apply to the townhouse. Ensure compliance with local laws and regulations governing short-term rentals, including licensing requirements, occupancy limits, and safety standards. Consider consulting with a knowledgeable real estate agent, real estate attorney or property management expert familiar with local regulations.

Scaling up your Airbnb portfolio? Evaluate the townhouse's investment potential within the broader context of your investment strategy and financial goals. Consider factors such as market trends, economic indicators, and long-term growth prospects for the area. Determine whether the townhouse aligns with your investment objectives, risk tolerance, and overall portfolio diversification strategy.

Master Your Next Investment—Townhouse or Otherwise

Investing in townhomes as short-term rentals offers a unique opportunity to capitalize on the growing demand for temporary accommodations in popular destinations. At the same time, townhomes aren’t the only profitable STR asset class. Finding the right one for you is as much about your market as it is about your unique investment strategy. 

Mastering your next short-term rental investment requires careful planning, research, and strategic decision-making. Explore proven, data-driven strategies in our Airbnb investment guide.

Considering a townhome for your STR venture? Our guide demystifies the evaluation process, showing you why townhomes might just be a cost-effective choice.

How to Determine Whether a Specific Townhouse Is a Good STR Investment

Are Townhomes a Good Investment for Rental Properties? Exploring Pros and Cons

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