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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Hawaiian on February 05, 2021, 12:01:20 PM

Title: Advice for buying a townhome rental property?
Post by: Hawaiian on February 05, 2021, 12:01:20 PM
We were looking at buying a rental property and I came across some townhomes. I'm looking for advice from others who have experience with townhomes and specifically as rental properties. I'm assuming the CapEx is less than standard rentals depending on the HOA? I think the appreciation is lower on townhomes too but I also feel like they would be easier rental properties with no yard upkeep, no? Thanks in advance!

I'm also looking for a mentor for real estate investing as well as general quality of life and life choice aspirations.
Title: Re: Advice for buying a townhome rental property?
Post by: Papa bear on February 05, 2021, 02:23:45 PM
By townhome do you mean a condo in an association? Or a townhome as a multi unit residential property?


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Title: Re: Advice for buying a townhome rental property?
Post by: Hawaiian on February 08, 2021, 06:33:34 AM
I mean a multi unit residential property.

I'm finding that the HOA's play a big factor in figuring out the rental value and cash flow because some things are covered that you would normaly include in maintinance and some just do not allow renting at all.
Title: Re: Advice for buying a townhome rental property?
Post by: waltworks on February 08, 2021, 07:06:47 AM
Most RE investors won't touch anything with an HOA, because it takes too much control away from the owner/landlord.
-You might not be allowed to rent your place out.
-You might have to pay an assessment for something you don't want (ie, new swimming pool).
-You have no control over when/how exterior maintenance is performed. That could mean paying too much to have the place repainted, or it could mean not painting when it's needed and having to replace all the siding (assessment!)

-W
Title: Re: Advice for buying a townhome rental property?
Post by: Jon Bon on February 08, 2021, 07:35:34 AM
I cannot speak to island markets at all. However generally condos/townhomes etc are trying to fit a square peg into a round hole. They don't do well as rentals because they are not set up to be rentals. 

Having to pay for other peoples home maintenance, as well as them being responsible for my home maintenance is pretty much my nightmare.

Hawaii has some pretty different rental laws does it not? Basically to discourage short term rentals in residential areas. All RE is local, we can give you some help but I would NEVER invest anywhere new without a ton of research first. Generally us RE guys will just give you pretty decent advice for free because we love talking about houses. Find one of those in your market and take them out to a dinner or two.
Title: Re: Advice for buying a townhome rental property?
Post by: icebox92 on February 10, 2021, 06:37:07 PM
I cannot speak to island markets at all. However generally condos/townhomes etc are trying to fit a square peg into a round hole. They don't do well as rentals because they are not set up to be rentals. 

Having to pay for other peoples home maintenance, as well as them being responsible for my home maintenance is pretty much my nightmare.

Hawaii has some pretty different rental laws does it not? Basically to discourage short term rentals in residential areas. All RE is local, we can give you some help but I would NEVER invest anywhere new without a ton of research first. Generally us RE guys will just give you pretty decent advice for free because we love talking about houses. Find one of those in your market and take them out to a dinner or two.

This...  We live on Oahu, and own several rentals on the mainland.  We rent here.  There is a reason why we don't invest in rentals here on island...  the numbers never work out for us.
Title: Re: Advice for buying a townhome rental property?
Post by: clarkfan1979 on February 11, 2021, 03:54:12 PM
We were looking at buying a rental property and I came across some townhomes. I'm looking for advice from others who have experience with townhomes and specifically as rental properties. I'm assuming the CapEx is less than standard rentals depending on the HOA? I think the appreciation is lower on townhomes too but I also feel like they would be easier rental properties with no yard upkeep, no? Thanks in advance!

I'm also looking for a mentor for real estate investing as well as general quality of life and life choice aspirations.

I have a rental on Kauai. It's a single family home with a mother-in-law suite. The cash flow is decent, but the appreciation is better. I pretty much get killed on the forum for keeping it as a rental. Be prepared for push-back. At the end of the day, it's a personal decision. I like it and it works for me.

I bought a "fixer" for $603,000 in June 2018 and put $50,000 worth of repairs into it. The median single family home on Kauai was $680,000 in October 2019. The price increased to $985,000 in October 2020, which is about 45% in 12 months. The January data came out yesterday. The new price is now $1,036,000.

Title: Re: Advice for buying a townhome rental property?
Post by: ColoradoTribe on February 11, 2021, 11:31:35 PM
I canít and wonít speak to the rental market on the islands. I do own two townhome rentals here in Colorado. I considered both single family and townhouses when I set out. There are proís and conís to both. Here is my reasoning and experience.

Living in a HCOL area the townhomes offered a lower entry point and to acquire our first rental sooner. Having no yard to maintain was big. You can task the renter with yard care, but its one less thing to worry about with a townhome. The HOA and association fee are a pain at times and you are surrendering some control, but you gain some things too. The HOA can be any early warning system if your tenants are breaking association rules or otherwise causing a disturbance. The association can offer amenities and common green spaces, playgrounds, tennis courts, etc. that can help attract renters. That said, I try to avoid associations with pools or too many amenities because the price to value added isnít worth it. Also, keep in mind that the HOA fees often cover water, trash, sewer, external repairs and maintenance and insurance for the walls out (roof, siding, etc.). These are things youíd pay directly or have to pass along to your renter with a single family home. I also like townhomes because they offer a low entry point for first time home buyers and are typically at the lower end of the price spectrum. To me this offers bit of a hedge in the event of a real estate market crash (not as far to fall and value propped up since people will always need some place to live). In my area, townhome appreciation has kept pace or exceeded single family home appreciation the past 4 years. Most single family homes in my area are out of reach for first time home buyers, this has increased competition for the more affordable options. Maintenance and renovation costs are lower and thereís generally fewer things structurally that can go wrong IMO.

The association can be an issue, so do your due diligence. Make sure the HOA has a good cash reserve. Inquire if there are any upcoming special assessments. Check the roof, fencing and siding, are they in good shape or in need of repair/replacement? These are some of the biggest HOA expenses. When crunching your numbers, assume the HOA fee will increase over time (5-10%/yr on average). Ask current residents what they think of the HOA. Be sure you know what the HOA fee covers and doesnít cover. Compare the fee to neighboring communities.

Good luck!