Why townhouse investment make sense

When it comes to property investment, the call from many advisors is that it’s entirely about location – and little else.

Granted, location is a primary fundamental of a good investment, but stopping your analysis there and falling back onto entrenched myths about what property type to buy is lazy in my opinion. This fraught logic says once you choose a suburb, you should simply buy any detached home and then sit and wait for the growth to come.

At the other end of the ‘advisor’ spectrum are those that will only sell investment units in particular projects, with a range of justifications as to why their clients should buy-in. Unfortunately, this part of the business can also be rife with unscrupulous operators collecting secret commissions – but that may be for another blog.

But there’s one property type which offers a balanced option and can fulfil many investor requirements.

Here are four reasons why townhouses should be on your must-see list when building a portfolio.

Yield + growth

Let’s assume you’ve selected an ideal location that meets all the right investment criteria.

The tough part now is finding a holding that will provide a great source of rental income and excellent capital growth potential.

But that’s tough, isn’t it? Detached established homes are often handy for capital gains, but at the expense of a solid rental return to help service the loan. Conversely, you could buy a high-yielding unit, but the chances of its value rising are limited.

On balance, townhouses fill the gap nicely. Because they offer a property that’s less generic than an apartment with the functionality of a home (and often with a small land component attached) they tick all the boxes. The result is more capital gain potential than a unit and a better yield than a house.

Broad demographic charm

Another advantage of townhouses is they usually have a broad market appeal among both owners and tenants.

Carefully selected townhouses are a very adaptable asset type for all sorts of households. They can suit a small family needing private car accommodation, separable living areas and a courtyard.

Alternative young professionals will choose townhouses for more privacy than a unit and where spaces like a spare bedroom can be easily adapted for home office, storage or extra living space.

They even have appeal to downsizers, particularly where a complex has live-in management and gated entry. This additional layer of security is always appreciated by retirees looking for a lock-and-leave option.

The versatility of townhouse design results in good demand from a wide range of tenant types, and when it comes time to sell, owner-occupiers will be among the buyer pool.

Accessibly priced

Imagine that you find a great location for investment and are ready to buy, so you start your due diligence on listings and options – and then make a disappointing discovery.

Investment-grade homes are stretching your budget to an uncomfortable level, while super affordable units have the wrong elements to ensure good capital gains.

A townhouse is the panacea.

Townhouses, on average, are a more price accessible way to get into a great suburb compared to detached homes. This means you don’t have to stretch your budget too far and can still purchase all the features that make for an excellent investment.

Also, the design of a townhouse is investment efficient. There is little wasted space or risk of overcapitalisation. In effect, you are maximising the rental return on every square metre you purchase.

Depreciation benefits

One of the biggest benefits of buying a newly built investment is their sizeable yearly deductions through depreciation.

What you may not know is that townhouses are one of the most efficient ways to create depreciable benefits from your portfolio.

In their 1000 Assets Report: 2020, national firm MCG Quantity Surveyors conducted a detailed analysis of depreciation schedule data they’d collected across 1000 reports and concluded:

“Townhouses have provided, on average, the highest total deductions as compared to detached houses and units. This appears to be due to the increased level of fit-out and finish in townhouse investments.”

In other words, because new townhouses use quality fittings and fixtures, they provided better depreciation benefit that other asset types per dollar invested.

When you’re investing for the long term and utilising tax allowances to your advantage, townhouses become a very savvy option.

Of course, to gain the maximum benefit from a townhouse asset, you must select the right property to purchase. One that has the right investment fundamentals for your long-term needs.

The best way to secure the ideal townhouse is with the help of an experienced, qualified investment professional, such as an ASPIRE Accredited advisor. They have a tried and true process that will take you from planning, to purchase and beyond.

Richard Crabb | MD ASPIRE Network | PIPA Board Member
Author: Richard Crabb | MD ASPIRE Network | PIPA Board Member

QPIA® - Qualified Property Investment Advisor | Licensed Real Estate Agent - VIC: 082760L - SA: RLA 292544 - QLD: 3579879 |Diploma of Financial Planning |Active Property Investor | Board member of PIPA - Property Investment Professionals of Australia. Richard is the Founder and Managing Director of the ASPIRE Advisor Network. After an extensive career in corporate finance and through his personal investing experience, Richard identified the need to create a system and framework that supports ethical, independent property investment advisors who operate in the new property market. The ASPIRE Advisor Network now supports independent property advisors across Australia by providing their business engine and acquisition process, designed around concepts of future compliance in the brand new property sector. Richard together with the ASPIRE team has also developed a complete end to end software platform, which is leading the way to deliver property investment advice in the new property space. Our goal is to work with investors to implement their goals and objectives buying investment properties across Australia, utilising a structure and information-rich end to end experience.

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