Townhouses - Are they a good investment? An honest review

Thinking about investing in a townhouse? Here is an honest review of the pros and cons and whether this option is the right fit for your investment portfolio.

LM b W

Laine Moger

Journalist and Property Educator for 6 Years
Introduction

If you’re thinking about investing in a new build investment property, you’ve probably seen that most properties being built today are townhouses.

That leads many investors to think, “are townhouses a good investment?”

In this article, you’ll learn what a townhouse is and how they stand up as an investment property.

Townhouses in Christchurch NZ

Though, just before we get into it, you should know that here at Opes, we recommend a lot of townhouses to investors.

That does mean there is an incentive for us to say that townhouses are a good investment.

But, this will still be an unbiased review based on the facts. Because the truth is, investing in townhouses isn’t the right fit for every investor.

What Are They?

What Is A Townhouse… How Does It Differ From Other Property Types?

Let’s begin with what a townhouse actually is.

Often, when discussing townhouses, we’re referring to terraced housing.

It’s usually a row of properties attached by at least one wall (if you’re on the end) or joined by two if your townhouse is in the middle.

This is what you commonly see in central areas, and they are your classic developments from Wolfbrook, Williams Corporation and similar other developers.

But, unlike apartments, townhouses come with their individual front doors, either accessible directly from the street or down a shared driveway.

Typically, townhouses are spread over 1 to 3 storeys, have a private patio garden, and often come with an internal garage or off-street car parking.

Townhouse developments can also vary in size, ranging from small, single-digit clusters to large scale neighbourhoods.

Townhouses in New Zealand 2022

But there are other types of townhouses too:

  • Duplex townhouses. These two attached properties share one wall and are mirrored on either side. These are usually larger homes, maybe 3 or 4 bedrooms over two floors.
  • Units. These properties are usually spread over 1 level and sometimes are attached to neighbours.
  • Standalone. These are usually single-family homes, most commonly found in large-scale development projects. Standalone townhouses mean you are adjoined to your neighbours' walls, but you will be close to them.
 

Townhouses are an attractive way for first home buyers to get on the ladder in central locations and are often purchased by investors.

This is because they are more affordable than standalone houses; new build townhouses come with significant tax benefits and have a reasonable yield and capital growth mix.

Where Are They Being Built?

Where Are The Townhouses Being Built?

Townhouse living is becoming more popular as New Zealand’s population grows – especially in the main cities.

Developers have responded by building more townhouses over the last 15 years.

Over time, a larger proportion of New Zealand’s building stock will be townhouses.

However, townhouses are only popular in larger cities. This is where populations are large, land is scarce, and higher-density living is required and accepted.

Take a look at this map of New Zealand. It shows the percentage of new dwelling consents that were townhouses in each council area in 2021.

While over 60% of new dwellings consented in Hamilton were townhouses, only 1.1% of new homes consented in Hurunui District (north of Christchurch) are townhouses.

How Much Do They Cost?

How Much Do Townhouses Cost?

Obviously – townhouses range in price, which is dependent on a whole bunch of things.

The exact price depends on how nice the property is (the spec) and the location.

But here are a few examples to give you a rough idea of what real investors are currently paying in today’s market.

Read our article here for a more in-depth discussion about how much you should be paying for an investment property.

What Does a 1 Bedroom Townhouse Cost

These properties are not as common as the 2 or 3-bed townhouses. But they can be a good option for a single person or a young couple looking to get their foot on the property ladder.

They range from around $500K and can go up to about $750K.

In Christchurch, Wolfbrook is advertising a 1-bedroom in Woolston for $520,000, and Williams Corporation has a 1-bedroom in Christchurch central for $625,000.

In Auckland, a 1-bedroom townhouse on Te Atatu Peninsula is being advertised for $745,000.

Property investment for Townhouses

What Does a 2 Bedroom Townhouse Cost?

In Auckland, 2-bedroom townhouses with a car park (no garage) can start from around $750,000 to $800,000.

In Christchurch, it’s slightly cheaper. 2-bedroom townhouses are popular and commonly found in Christchurch’s inner-city suburbs like Addington. These properties are usually priced between $610,000 and $660,000 and rent for around $500 a week.

If this townhouse was further out of the city centre, in say Waltham, it would be slightly cheaper again.

However, if these Christchurch-based townhouses have garages, they will be priced around the $700,000 mark.

 

What Does a 3 Bedroom Townhouse Cost?

In Auckland, a 3-bedroom townhouse with a car park will start around $850,000 and head up towards $1.2 million.

For example, a 3-bedroom, 1.5-bathroom property in Glen Eden with a car park has recently been purchased by investors for $859,000.

Town 001

In another example, a Mangere 3-bed, 1.5-bathroom townhouse is currently advertised for between $775K and $787K.

Townhouse in Mangere

In Christchurch, 3-bedroom townhouses are less common.

Comparison

Standalone Properties vs Townhouses - Which Grows in Value Faster?

Since standalone properties have more land, many investors often think that they’ll grow in value faster than a townhouse.

 

In other words, more land = faster capital growth.

That leads some to think that townhouses will grow in value much more slowly than standalone properties.

And while Opes Partner’s data-crunching did find some difference between the long term capital growth between houses and townhouses – the difference is surprisingly small.

Yes, standalone properties tend to grow in value slightly faster than townhouses, but it’s a photo-finish.

For instance, on average, in Auckland, standalone houses tended to increase in value by 0.6% faster per year than townhouses.

Take a look:

  • In Wellington, houses beat townhouses 58% of the time and only by a 0.1% margin. For example, if a house increased by 6% in a year, the equivalent townhouses will have increased by 5.9%.
  • In Christchurch, houses beat townhouses 71% of the time, but by a 0.5% margin. For example, if a house increased by 6% in a year, the equivalent townhouses increased by 5.5%.

For a more in-depth look at how the capital growth data compare between houses and townhouses across the country, check out our graphs and data below.

Who Are They A Right Fit For?

Who Is A Townhouse The Right Fit For?

A townhouse can be a good investment choice for a passive, long term buy and hold investor.

They tend to grow in value well over the long term; they are relatively affordable and usually have a reasonable rental yield.

For example, a 2-bedroom New Build townhouse could be a good fit for investors who are just getting started. For these sorts of investors, affordability is a big drawcard.

Who Are They Not A Right Fit For?

Who Is A Townhouse The Wrong Fit For?

However, a townhouse will not be the right fit for every investor.

For example, because townhouses are considered a growth-focussed investment, they won’t be the right fit for investors who really need yield.

Those tend to be investors who are close to retirement or already have significant assets and are ready to live off the rental income from their portfolios.

townhouses in christchurch

In that case, higher-yielding investments like dual-key apartments are likely a better fit.

Similarly, if you are a renovations-focused investor, townhouses might not be the right for you. The reason is that renovations-investors often add bedrooms to a property, which is easier to do with a standalone house than with a townhouse.

Finally, some investors can’t get their heads around townhouses and only want to invest in standalone houses.

Look, if a townhouse will cause you to lose sleep at night, then it’s probably not the right fit for you.

Should I Invest In One?

Should I Invest In A Townhouse?

All things considered, a townhouse can be a good investment for some investors.

These tend to be investors who want to follow a passive buy-and-hold strategy. If that’s you, great. A townhouse could be a good fit.

But, it’s important to note that not every townhouse is automatically a good investment.

Ultimately, it comes down to the numbers and being able to sort the good investments from the bad.

Central City Townhouses NZ

That’s why, here at Opes, we work with 58 developers from around NZ to find suitable properties for Kiwi investors. And then, once we find them, we rigorously run the numbers to offer sound investment properties to our investors.

This means considering not just whether it is a townhouse but also an assessment of the location, the neighbourhood, the price, the rental capacity and the developer.

To find out more about how we find quality investment properties for investors, read about our property investment programme here.

Can Opes Partners Help Me?

Who are Opes Partners and can they help me?

What is the 3-Step Opes Coaching Programme?

1. Plan out your property investment portfolio

The first step in the programme is to co-create a plan using our MyWealth Plan software. We built this software specifically to help Kiwis create a financial plan in under an hour.

You'll leave this 1-hour session with a written down plan. Pen to paper.

2. Pick properties that fit with your plan

Once you've created your plan in step #1 – your property partner will go out and find properties that fit your plan. They'll search through projects from up to 58 developers to find the best ones for you.

When you meet again, you'll review the top picks, go through the analysis, crunch the numbers together, and then decide which ones to hold with the developer.

3. Dig into the details – Confirm it's the right property for you

Once you've selected a property, you'll work for 10 days to make sure it's the right property for you. So you'll work with your Property Partner and Client Relationship Manager to dig into the details of the property.

You'll go and look at the development and be introduced to mortgage brokers, solicitors, accountants, and property managers. Their sole job is to help you figure out if this property works for you.

And you’ll have access to all the resources, tools, and data … so when confirmation day comes, you have confidence you know you’re making the right decision.

Who is the Opes Coaching Programme the right fit for?

  • You understand the concept of property investment, but who wants help putting it into practice.
  • You want a “Done for you” property investment service, so you can be a hands-off investor.
  • You are someone who has at least a 10 year investment time horizon.
  • And finally, you’re ready to become a property investor.

Who is the Opes Coaching Programme is NOT the right fit for?

  • You’re more into the smell of paint or the colour of a wall than the numbers that stand behind an investment property.
  • You only want investments that are hands-on, so you can save a few dollars here and there.
  • You have plenty of time on your hands and want to do the property investment process yourselves.
  • You’re looking for an overnight success and want to get rich quickly.

What does it cost to work with Opes Partners and go through the programme?

It’s free. Complimentary. No Cost.

Why?

The developer pays us a marketing fee when you confirm that the property is the right fit for you. Very similar to the way a mortgage broker gets paid by the bank.

Now it's important to note that we are paid the same fixed rate no matter what property you invest in.

If it’s a $500k apartment in Christchurch or a $1.3 mil 3-bedroom townhouse in Ponsonby – we get paid the same rate.

That's important because then we can recommend the right property for you, and there's no incentive to recommend you invest in a more expensive property, just so we get paid more.

I want learn more about how Opes can help me

Learn more about the Opes Coaching Programme Here

LM b W

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.