Private property issue #65 - Trouble with Townhouses

Townhouses aren’t the right investment for all property investors.

Last week one Private Property subscriber sent me an email. They’d been looking at townhouses and were speaking with a friend.

Their mate had been investing for a while. So to help them out, their friend wrote down all the problems with townhouses as an investment.

Some of their comments were correct … and yes, there are some problems with townhouses.

But, others were not correct.

Let’s go through them so you can decide whether investing in a townhouse is right for you.

#1 – “Capital gains on townhouses is poor”

Townhouses increase in value (slightly) slower than houses. That is true.

But the difference is marginal and smaller than you think.

Take a look at Christchurch: 

There have been times when houses have increased in value faster than townhouses. More recently, that gap has narrowed.

Since 2014 Christchurch houses increased in value just 0.2% faster than townhouses per year (on average).

So if a house goes up in value by 7% a year, a townhouse goes up by 6.8% yearly.

In Wellington, that margin was just 0.1%.

So townhouses increase in value a bit slower. But they don't lag behind substantially like apartments do.

Extra Resource: Houses vs. townhouses vs. apartments. Which goes up in value faster?

#2 – “Buying in a large development means there will be lots of similar properties, so it’s harder to sell.”

This is a good point and is true in some cases.

Some townhouse developments have 80 units that are all identical.

So when you come to sell your property, there could be an identical unit on the market at the same time.

This means competition.

One way to get around this is to buy in either a smaller development or one with many property designs and layouts.

There’s a big difference between:

• buying in an 80-unit development where all units are the same
• buying in an 80-unit development with 8 different property layouts and floorplans.

In the first scenario (1 layout), you have 79 ‘competitors’.

In the second scenario (8 layouts), you have 9 ‘competitors’.

#3 – “Townhouses only sell well in a hot market”

This is not true.

On average, townhouses do not take substantially longer than houses to sell.

In today’s cooler market, townhouses only take slightly longer to sell than houses.

In Christchurch, it takes 47 days to sell a townhouse (on average) and 45 days to sell a house.

#4 – “ ... Townhouses are dark”

Some townhouses have other units on either side, so they only have windows on the front and back of the property.

That means some poorly designed townhouses are dark. You don’t want that.

Others are modern, light and bright.

This is the same for all properties.

Some houses are dark and dingy, while others are flooded with natural light.

That’s why you’ve got to look at similar properties the developer has built. That way, you can make sure they build properties with the right-sized windows in the right places.

#5 – “Townhouses only have 1 car park. Most people have 2 cars.”

Some investors think that townhouses don’t have enough parking.

According to the latest transport data, 40.5% of households either have no car or only one car.

So having one car park suits 2 out of 5 New Zealanders.

Property investors are often a bit better off than the average Kiwi. So if your family has two cars, you might think every potential tenant will also have two cars.

But there’s a massive chunk of New Zealanders where having 1 car park suits them.

Townhouses have problems, but they also have pros

While townhouses have drawbacks, they also have drawcards.

The average townhouse is about 20% more affordable than the average house (in Auckland).

They have decent rental yields and are often closer to the city centre.

But not every townhouse is a good investment. So if townhouses are the right fit for you, you need to find the right one.

If you want help finding the right new build investment property, book a meeting with one of my team.

We help regular Kiwis grow their wealth with new build investment properties.

P.S. To be really clear, here at Opes we don’t just recommend townhouses. There’s a great article that shows all the types of property we recommend below.