Should You Buy a Townhome?

If you’re in the market to purchase a home, you may be wondering whether a condo, townhome, or single family home is your best bet. Factors like location and purchase price are at the top of your list, but when it comes to single family homes versus multifamily homes, what are the pros and cons to consider?

One potential benefit of purchasing a multifamily residence is that you could live in one unit and rent out the other(s), covering a portion (or even all) of your mortgage expenses. This is an awesome way to begin investing in the lucrative Real Estate market. Once you are ready to move on to another property for your personal residence, you could rent out both sides and continue to reap the benefits of property investment. If this is an attractive option for you, make sure you work with a licensed Realtor familiar with the housing market in your specific location of interest, and ideally someone with experience working with investors.

A potential con: a duplex or apartment building will likely cost more than a single family home. How much more depends on the size, age, condition, and features of any given property. If you are interested in investing, this doesn’t make multifamily housing a poor investment by any means — you simply need to approach your purchase knowing a duplex will cost more than a similarly sized single family home in a similar location; you are essentially purchasing two homes in this case, that happen to share a wall.

Pro: Building your wealth is better than paying rent. When you own a townhome or other multifamily property, you are paying a mortgage and building equity over time, rather than lining your landlords pocket with rent money. There are some situations in which it makes sense to rent, and you (and/or your personal financial advisor) know your unique situation better than anyone, but rent does not build equity, and will not pay you back in the future. Real Estate, on the other hand, is typically a wise investment that will pay future dividends, in a typical economy.

Potential con: Tenants. If you’re going to invest in rental property, it is essential that you educate yourself about the process of screening potential tenants, know your rights as a landlord, and know and understand your tenant’s rights. Some investors hire property managers to screen tenants, process rent payments, and handle move-in/move-out events. This cuts into your return on investment, but it also means someone else deals with any potential issues, not you. You’ll need to be prepared to make necessary repairs to your property in a timely fashion; you might be able to put off the work if you are living there, but tenants have a reasonable expectation of timely repairs to the property, and this will be your responsibility.

Another pro of investing in multifamily housing: Tax Benefits. You’ll be able to deduct the cost of repairs + maintenance on any rental units in your property (though not repairs to your primary residence, if you live in the property as well.) Advertising expenses, property management expenses, and maintenance like snow removal or lawn care are also likely tax-deductible. Check with a qualified, licensed tax professional in your area to ensure you are claiming expenses appropriately. These specific benefits of rental property can reduce your overall property tax burden each year.

Potential con: Vacancies. Whether a tenant moves out, passes away (it happens), or eviction becomes necessary, every long term landlord experiences property vacancies. You’ll need to be prepared in advance to cover the full cost of the mortgage on your investment property should any unit(s) become vacant, and you’ll want to have a plan in place for keeping all units occupied as much of the time as possible to protect your investment, and your cash flow.  

Pro of buying a multifamily home: No More Rising Rent Costs. The Millennial generation tends to put off buying a home in favor of renting for now, which continues to drive up rental rates, particularly in and around urban centers like Metro Denver. If you own a duplex, triplex, fourplex, or other multifamily property and live in one of the units, you can raise rents to match the marketplace, but your mortgage cost will remain the same. You’ll benefit from the rising cost of rent, instead of being stuck with a higher rental rate yourself. #winning

If you are in the market to purchase a new home and you’ve been thinking about dipping your toe into the awesome advantages of Real Estate investing, now is a great time to take the plunge! I’m happy to provide you with the information you need to make an informed decision in the competitive Denver Real Estate market.


Jack Meyers  

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