Making money in real estate can be achieved through a myriad of ways. In fact, the US housing market offers a wider range of options than just about any other sector. One such option is buying a townhouse as an investment. This tried and proven strategy has always yielded tremendous returns and real estate investors who put up townhomes for rent continue to generate a consistent stream of cash flow. So what exactly is a townhouse investment? And what are the steps to buying a townhouse? In this article, we are going to walk you through the process of buying a townhouse and share with you some valuable tips that should help you master how to buy a townhouse.
What Is a Townhouse?
Before delving into how to buy a townhouse, we must first define what these investment properties are. In simple terms, a townhouse is a multilevel property that is attached to another residence or two. The properties are separated by a communal wall and some might even have patios or front yards. They share a lot of similarities with row houses with the configuration being the main difference between the two. As you would expect, row houses are typically lined up in a row whereas townhouses are not restricted to one particular configuration. Here are some of the benefits of investing in townhomes:
- They offer you more ownership than condos
- Townhomes are fairly affordable
- Their compact size makes them easy to maintain
- The utility bills of townhomes are usually low
Now that you are familiar with these rental investment properties, let’s get into the essential how to buy a townhouse tips and steps.
How to Buy a Townhouse
Finding townhouses to invest in is relatively simple. In fact, the process hardly differs from the steps that you need to take when investing in other types of real estate. In any event, here is how to buy a townhouse in a few easy steps.
1- Set a budget
Figuring out how to buy a townhouse starts with setting a budget for your real estate investment. This is essential to helping you stay within your financial means. Here is what you will need to determine before investing in a townhouse:
- How much you are willing to put as a down payment
- The amount of money that you are willing to spend on repairs and potential renovations
- The cash reserves that you can allocate for future expenses and unexpected costs
- The maximum monthly mortgage payment that you can handle given your income and expected cash flow.
Determining these variables will allow you to focus your investment property search on the townhomes that are ideal for you.
2- Pick a good location
There are many factors to consider when looking for a location. As far as townhomes are concerned, you should consider buying a rental property that is located on a busy road or near a major highway since these features are more likely to attract tenants. Naturally, you also want to focus your search on neighborhoods that have all the essential amenities. This includes everything from schools and hospitals to shopping centers and restaurants. Needless to say, these neighborhood amenities increase the appeal of the area and ensure a constant influx of potential renters.
Another option that you should consider exploring is using a specialized tool that helps you find the ideal location to invest in. For example, you can use the real estate heatmap to identify the top-performing areas on a map. Thanks to a combination of visual cues and property data, this tool is able to provide you with accurate results that match your investment objectives.
Related: Real Estate Location – Why It Makes for the Most Profitable Investments
3- Find townhouses for sale
There are several ways to find townhouses for sale. Your first option is to simply hire a real estate agent that has a lot of experience with this type of real estate deal. In fact, well-connected agents can easily leverage their network to help you find the perfect real estate investment. But if you feel that enlisting the help of an agent is not needed at this point, then you should consider using the Mashvisor property finder. This highly advanced tool employs cutting edge AI technology as well as a set of machine learning algorithms that will show you a list of the top-performing investment properties for sale in the location of your choice. For those who are planning on buying a townhouse to rent out, using the property finder can go a long way in simplifying and streamlining the investment property search process.
4- Assess the viability of potential investments
Analyzing townhouse investments is critical to ensuring a profit. In fact, conducting an investment property analysis is what allows you to assess the potential of the property and estimate the expenses that come with it. The best way to do this is to use the investment property calculator. This software application helps you determine various important metrics such as cash flow, cap rate, and cash on cash return. As a bonus, you can also use it as an Airbnb calculator to compute for your potential ROI and revenue on short-term rental properties.
To start your 7-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
5- Secure financing
Locking down your investment property financing should be one of your first priorities. Fortunately, you are presented with a lot of options when it comes to picking a financing method. In fact, the mortgages that are available to you when you invest in townhomes are virtually identical to those that are issued for regular single-family homes. This includes conventional mortgages, private financing, seller financing, and crowdfunding. And if you were wondering how to buy a townhouse with no down payment, make sure to check if you are eligible for certain special programs such as VA loans and navy federal loans.
Related: 4 Investment Property Financing Methods
6- Get the investment property appraised and inspected
Once you pick the townhouse that you want to buy, you will need to conduct a professional home inspection as well as an appraisal. This is crucial for assessing the true value of your future investment property and ensuring the asking price is in line with its current condition. More importantly, the inspection might reveal some issues that could prompt the seller to accept a lower offer.
7- Close the deal
The last part of the process is closing the deal. This step involves signing a lot of documents and the presence of a broker or a real estate lawyer is highly recommended. Here are some of the things that you should watch out for when closing on a townhouse investment:
- Review the closing disclosure and make sure the costs are divided between you and the seller.
- Go over your mortgage terms.
- Get your keys immediately after the closing.
Related: Who Pays Closing Costs When You Buy an Investment Property?
The Bottom Line
As you can see, townhomes are an ideal choice for real estate investors who are hesitating between condos and single-family homes. These rental properties offer the best of both worlds and the increasing demand for them makes them a good investment for the future.
To start looking for and analyzing the best townhouse investment properties in your city and neighborhood of choice, click here.