3-Bedroom Townhouse Review – Are They a Good Investment? An Honest Review

Thinking about investing in a 3-bedroom townhouse? Here is an honest review of what the pros and cons are 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

Every year at Opes Partners we recommend over 1000 New-Build properties to Kiwi property investors.

And because we deal with over 57 developers, many of who build 3-bedroom townhouses, many people ask us “do 3-bedroom townhouses make a good investment?”

Never one to shy away from being blatantly honest. In this article, you’ll learn the pros and cons of 3-bedroom townhouses, and whether this type of property is suited for your property portfolio.

3 bed townhouse nz
Value

Do 3-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.

Now, let’s think about whether the number of bedrooms impacts how quickly your townhouse increases in value.

We’ve crunched the numbers comparing the long-term increase in value for townhouses based on the number of bedrooms the properties have.

Take a look at the below graph:

How is this data calculated?

This graph shows the average annual change in median sales prices for townhouses based on the number of bedrooms.

This only looks at the long-term growth rate, so the graph considers the change in median sales price over a 10-year period.

Why calculate the data over a 10-year period?

We use 10 years to smooth out the volatility. That’s because year-to-year the median sales price will change rapidly. That happens because we are using median sales prices, which is based off the properties that actually sold year-to-year.

In addition, most of the investors we work with at Opes Partners are interested in long-term capital growth rates, not short-term rates. That’s because they are investing for 10+ years.

What are the strengths and weaknesses of this data?

The good thing about this data is that we are able to clearly see the differences between townhouses based on the number of bedrooms. This is a strength.

It’s also good that the data is based over 10 years and is provided by REINZ – a well-respected data provider.

However, there are some clear weaknesses. The graph shows the median change in sales prices. We’ve used this data because it is available. But changes in the median sales price is not the same thing as changes in property values.

Similarly, using a median or average change in sales price (or value) only gives you what happened to the average property, not to the underlying market in general. So if there was a house price index available, we would use that.

However, that sort of top quality data doesn’t let us segment how different types of properties have increased in value based on their number of bedrooms.

What does this mean? It’s better to have some data than none at all. But take it with a grain of salt. Don’t poor your life savings into 2-bed townhouses based on one graph alone.

Between 2002 and 2010, it appeared that Auckland townhouses all increased at a very similar rate, no matter the number of bedrooms.

But, after 2010, 2-bedroom townhouses in Auckland appeared to have a slightly higher capital growth rate than those with 3 or 4 bedrooms.

This seems counterintuitive, since you might think that since 3 and 4 bedroom townhouses are larger, they might be more desirable. However, that’s not what we see in the data.

A few words of caution:

  • Capital growth isn’t the only measure of whether an investment is good or not. You also need to consider the rental return, which we’ll consider below
  • The data above is not bullet-proof or wholly conclusive. That’s because we are looking at long-term changes in the median sale price of a property, not changes in underlying house prices. This is nerdy speak for – it’s good to see the data, but it’s not a slam dunk.

So, don’t rush out and buy a 2-bed as opposed to a 3-bed solely because of the above graph. But, intuitively, you might have thought it was the other way around.

Where Are They

Where Are Most 3-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.

When it comes down to townhouses with 3 bedrooms, Auckland has a boat load more 3-bedroom townhouses than Christchurch or elsewhere in the country. At the time of writing this article, Opes Partners had no 3-bedroom townhouses available in Christchurch on our stocklist.

This isn’t because investors don’t want to buy 3-bedroom townhouses; it’s because developers just aren’t building that many in Christchurch.

This means, when 3-bedroom opportunities do come up in Christchurch, they are often gobbled up quickly.

This could be because there are more 3 bedroom houses available in Christchurch. So, if someone wants to buy or rent a property with 3 bedrooms, they might decide to opt for a standalone house.

Whereas in Auckland it’s a different story. Land and space are at a premium, so 3-bedroom and 4-bedroom townhouse are more the norm.

So, if you want to buy a 3-bedroom townhouse you may have to wait to get one in Christchurch. But in Auckland, they’re more common.

What Do They Look Like?

What Do 3-Bedroom Townhouses Look Like?

Typically a 3-bedroom townhouse will have two or three stories.

If it’s a 2-story townhouse, the kitchen and living area is typically on the bottom floor, while the bedrooms and bathrooms are upstairs.

Here’s an example of a property that we recommended in Mangere Bridge, Auckland, which follows this format. Note that in this specific example one of the bedrooms is a single, which can also double as an office.

Just be aware that this is not always the case. Not all 3-bedroom townhouses have 2 doubles and a single bedroom.

3 bed 2 story townhouse Opes recommended

If it’s a 3-story townhouse, the layout can be different. It’s often popular to have a garage, bedroom and bathroom on the bottom floor. There’ll then be kitchen and living on the second floor, and often 2 bedrooms and a bathroom on the top floor.

Here is an example of this sort of floor plan for a project of townhouses we recommended to investors in Manurewa, Auckland.

3 story townhouse Opes recommended

Obviously, the floor plans change depending on the individual development and what the developer decides to build. While these sorts of floor plans are popular, they’re not all like this.

Cost

How Much Does A 3-Bedroom Townhouse Cost?

First off, it goes without saying that a 3-bedroom townhouse is usually going to be more expensive than a 2-bed, but is likely to be cheaper than a 4-bedroom townhouse.

This can place them a little bit further out of reach for investors who are just starting out and may be budget constrained. Those sorts of investors might set their sights on 2-bedroom townhouses, which tend to be more affordable.

In Auckland, the price tag for a 3-bedroom can range from $850,000 to $1.25 million.

In Christchurch, you’re likely to be looking at mid-$700K’s and above.

Right Fit?

Who Is A 3-Bedroom Townhouse The Right Fit For?

3-bedroom New Build townhouses tend to be a good fit for investors who can afford to spend a bit more on an investment property.

That’s because you might need to invest in a more expensive city (like Auckland), and then it costs more to build a 3-bedroom property than one with only 2 bedrooms.

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.

A 3-bedroom townhouse is also more likely to attract a small family compared to a 2-bedroom townhouse. So this could be a good option for an investor who wants security of tenure. It’s reasonable to think that a property with 3-bedrooms might attract less transient tenants.

Finally, these sorts of properties could be the right fit for investors who already own 2-bedroom townhouses, or one type of property. In that instance you might look for diversification and seek to buy a 3-bedroom townhouse.

Wrong Fit?

Who Is A 3-Bedroom Townhouse The Wrong Fit For?

On the other hand, if you are a seasoned investor with a lot of 3-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 3-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 3-bedroom townhouse may not be the right fit at all.

3 bed townhouse nz

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, a New Build 3-bedroom townhouse just isn’t for you.

Conclusion

Remember … Not Every 3-Bedroom Townhouse Is A Good Investment

All things considered, a 3-bedroom townhouse can be a good investment for some investors.

Different regions make them a good investment for different reasons. But, it is important to note that not every townhouse with 3-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 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 3 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.

Who are Opes Partners?

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 Progamme 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 Progamme 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.