When it comes to real estate investment in the U.S., investors often debate whether apartment or townhouse is a better choice. Factors like rental yield, property appreciation, tax implications all contribute to an investor’s decision. After comparing pros and cons of apartment and townhouse investment, it becomes clear that townhouse stands out in terms of stable cash flow. Its larger size, backyard access as well as privacy also make townhouse more appealing to both owner occupants and renters.
townhouse offers higher rental yield than apartment
According to the articles, while downtown apartments in major U.S. cities like Chicago saw rents increase by 12% in 2021, their net rental yield was estimated at only about 5%. In contrast, townhouses in Chicago’s north side and suburbs recorded rental transactions across all property classes, with average yields approaching 6%. The larger floorplans and access to a private backyard allow townhouse owners to charge higher rents. The articles argue that despite downtown apartments benefiting from the urban revival, most investor attention is still on non-core neighborhoods and suburban townhouse markets which offer 8% capitalization rates or even higher.
townhouse appeals to wider range of tenants
The open layout of apartments caters more towards single occupants such as students or young professionals. Families with children or pets on the other hand prefer the larger living spaces and backyard access provided by townhouses. While the demographics of apartment renters is relatively homogeneous, townhouses attract tenants across different income levels and life stages. The flexibility in using the additional basement or garage also enables townhouse owners to generate rental income through a secondary suite. As a result, townhouses generally experience lower vacancy rates compared to apartments.
townhouse offers long-term property appreciation
Unlike apartments which depend heavily on the building condition, townhouses derive a significant portion of their value from land appreciation over time. The articles point out that the land underneath old townhouses could be worth upwards of 70% of the total property value, acting as a buffer during housing downturns. While apartments units themselves depreciate over time, the land appreciates independently to fuel townhouse price growth. Particularly in land-scarce downtown locations, price per buildable square footage far exceeds construction costs. This presents significant redevelopment potential for aging townhouses in prime urban areas.
In summary, townhouse investment outperforms apartment in generating cashflow through higher rents made possible by larger living spaces, backyard access and flexible basement/garage use. The land value factor also makes townhouse more resilient against market corrections. Therefore townhouse represents a favorable real estate investment option.