2-Bedroom townhouse review – Are they a good investment?

2-bedroom townhouses are one of the most common investment properties.

They are more affordable than townhouses with 3 or 4 bedrooms and they are popular to build, so there is a wide selection.

But are they a good investment? Here’s our honest review.

In this article you’ll learn the pros and cons of 2-bedroom townhouses, and whether this type of property is suited for your property portfolio.

If you have any questions or thoughts, please leave them in the comments section below.

What Does A 2-Bedroom Townhouse Cost?

Firstly, 2-bedroom townhouses are often attractive to investors because they are more affordable than townhouses with a higher number of bedrooms.

This makes these types of townhouses popular among first-time investors, who don’t have the ability to spend more on an investment property.

From our experience, a 2-bedroom townhouse in Christchurch tends to be in the region of $620,000 – $670,000, depending on location and features.

For instance, any 2-bedroom townhouse in the lower-socio economic areas of Christchurch (Phillipstown, Linwood, Woolston) starts from $620,000, including a car park. This is because the land is cheaper than other areas of the city.

However, if the property is higher spec or has a garage (instead of a car park), the cost will likely be up to $700,000.

Do 2-Bedroom Townhouses Increase in Value as Fast As Other Townhouses Or StandAlone Properties?

Many property investors assume that townhouses don’t appreciate in value as fast as a standalone property, but this isn’t necessarily true.

For instance, take a look at the above graph. This shows the long-term capital growth rate between houses and townhouses.

It suggests the difference in long-term capital growth between houses and townhouses is not very large at all. In some instances, it’s marginal.

On average, houses grew 0.6% faster than townhouses. Put simply, if houses received a capital growth rate of 7%, townhouses grew by 6.4% in that given year.

While there is a difference, you also need to consider that by buying a townhouse you can often purchase in a better quality area than a standalone house, since the cost will be substantially lower.

Similarly, there’s nothing to suggest that a 2-bedroom property is going to go up in value slower than a 3-bedroom or 4-bedroom townhouse.

In fact, after 2010, 2-bedroom townhouses in Auckland appeared to have a higher capital growth rate than 3 or 4 bedroom properties.

That doesn’t mean you should rush out and buy a 2-bed as opposed to a 3-bed. But intuitively you might have thought it was the other way around.

Where Are Most 2-Bedroom Townhouses Being Built? Where Are Investors Buying?

Townhouse living is becoming more popular. As it becomes more the norm, a larger proportion of New Zealand’s building stock will be townhouses.

However, townhouse living is 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 dwellings consented in Hurunui District (north of Christchurch) are townhouses.

So, while a townhouse in a major city might be acceptable to tenants, if you are investing in a rural area like Hurunui or Stratford, townhouses may not be accepted as the norm.

If There Are Lots Of 2-Bedrooms On The Market, Will I Be Able To Get A Tenant Quickly?

Investors might worry that because 2-bedroom townhouses are the most commonly built, they might lack the differentiation needed to appeal to tenants.

We don’t see this in the data. That’s partly because in the middle of a rental crisis it’s not like New Zealand is going to run out of people looking to rent.

In fact the data shows that 2-bedroom townhouses are the most popular type of townhouse to rent. They far outstrip the number of townhouses rented with either 1 or 3 bedrooms.

Take a look at the above graph. In the 6 months between May ‘21 and October ‘21, over 10,000 people moved into 2-bedroom townhouses.

A major factor is clearly that there are a lot of 2-bedroom townhouses being built, but it also shows that those 2-bedroom townhouses are being tenanted.

Are There Too Many 2-Bedroom Townhouses?

Some investors may worry that an abundance of 2-bedrooms being built runs the risk of an over-saturated market.

It’s a fair question. New Build townhouses are becoming more common in the main city centres as zoning laws are loosened. Take a look to see how there are more townhouses being built.

Ten years ago, only 6% of properties build in Auckland were townhouses.

Now, that figure is above 50%.

Unfortunately we don’t have data available that shows the breakdown of dwelling consents by the number of bedrooms. So we don’t have hard data that says that a high proportion of these townhouses have 2 bedrooms.

But, from our experience, we know this to be the case. 2 bedrooms a very popular build option.

So is there an “over supply” of 2 bed townhouses?

It’s hard to say, because you can’t easily (and accurately) estimate what the demand and supply is for a particular type of property.

But if there was an oversupply of 2-bed townhouses, you’d expect to see that in the capital growth and rental data. Both quantitatively and anecdotally, we see 2 bedroom townhouses increase at the same or similar rate to other types of townhouses.

We also see these sorts of townhouses being rented in a reasonable time frame.

This is likely because the demographics of the country are changing, which means that there is a larger need for homes with a smaller number if bedrooms:

• People are settling down later, so are single for longer
• More people are living alone
• Houses are more expensive, so more affordable properties need to be built
• People are having smaller families, so need a smaller number of bedrooms

So while you can understand investors asking the question about whether there are “too many” 2 bedroom townhouses. We don’t see it in the data.

Who Is A 2-Bedroom Townhouse The Right Fit For?

2-bedroom New Build townhouses tend to be a good fit for investors who are just getting started. For these sort of investors, the affordability is a big drawcard.

For instance, rather than placing all your hard-earned pennies in one expensive property, these sort of investors might invest in multiple, more affordable properties to get their portfolio off to a good start.

This could mean being able to buy one 2-bedroom townhouse in Christchurch and another in Auckland, which means they can add diversification to their portfolio.

These sorts of townhouses also tend to work better in main cities with decent populations. Tenants and purchasers are used to living in higher-density properties, so there is demand for these types of developments.

Because a 2-bedroom townhouse is a popular choice for tenants, you can have some confidence you will be able to tenant the property (assuming there isn’t an oversaturation in the immediate area).

Who Is A 2-Bedroom Townhouse The Wrong Fit For?

On the other hand, if you are a seasoned investor with a lot of 2-bed townhouses, you might consider your next purchase in the wider context of your portfolio.

Perhaps it would be better to invest in another type of property to diversify your portfolio.

Also, a 2-bedroom townhouse is likely not to be the right fit if you are investing outside one of the main centres. If you are dead set on investing in Kaitaia, Te Anau or Kaikoura, a 2-bedroom townhouse may not be the right fit at all.

It’s not as common for people to live in townhouses in these rural areas, so these sorts of properties are better suited for those investing in the main centres.

In addition, renovations-focussed BRRRR investors are not suited to New Build townhouses, no matter the number of bedrooms. That’s because they don’t have the ability to increase their value.

So, if you’re an investor looking to nab a perfect property to execute a BRRRR strategy, the 2-bedroom townhouse just isn’t for you.

Every 2-Bedroom Townhouse Is A Good Investment

All things considered, a 2-bedroom townhouse can be a good investment for some investors. But it is important to note that not every townhouse with 2 bedrooms is automatically a good investment.

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

That’s why, here at Opes, we work with 57 property developers from around NZ to find the right properties for Kiwi investors. And then once we find them, we rigorously run the numbers to offer good investment properties to our investors.

This means considering not just whether it is a townhouse with 2 bedrooms, 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, click here to read about our property investment programme.