Investing in property remains one of the most reliable routes to building long-term wealth. For many, the dream is owning a portfolio of single-family detached homes, but as property prices continue to climb, a different asset class is stepping into the spotlight: the townhome.
Often overlooked in favour of houses or flats, townhomes offer a compelling blend of affordability, strong rental demand and lower maintenance burden, making them an increasingly attractive option for both novice and seasoned investors.
But is a townhome truly a good investment for your portfolio in 2026? Let’s find out…
- What is a townhome?
- The tenant profile: who rents townhomes?
- Pros: why invest in townhomes?
- Cons: risks & challenges
- Townhomes vs. other property types
- The HOA factor: due diligence checklist
- Managing townhome investment
- How to evaluate the numbers
- Frequently asked questions
Want to streamline your property management, delight your tenants and ensure all HOA rules are clearly communicated?
What is a townhome?
Before assessing their investment potential, it is vital to understand precisely what a townhome is and how it differs from other popular residential property types.
Definition
A townhome (or town house, as it is often called in the UK and Ireland) is a multi-story property that typically shares one or more walls with adjacent properties but features its own private entrance from the street. They are built in a continuous row or cluster, often creating a uniform appearance within a community.
Townhome vs. condo vs. house
The key difference lies not just in the structure but in the ownership structure:
- Townhome: The owner typically owns the exterior walls, the roof, the land immediately beneath the unit and the interior. They are subject to an HOA, which manages shared amenities and exterior maintenance.
- Condo (or flat/apartment): The owner only owns the interior space of the unit. The building structure, exterior and land are owned jointly by all unit owners, usually through the HOA.
- Single-family house: The owner owns the entire structure and the land it sits on, with complete autonomy over the property, free from HOA rules (unless the area is part of a specific managed community).
Ownership structure
In a townhome, the ownership is often described as a fee simple title (the most complete, extensive, and unlimited form of ownership possible, often synonymous with freehold in the UK) for the unit itself and the land it occupies, combined with a fractional ownership interest (or a membership) in the common areas and amenities managed by the HOA. This structure grants more control over the immediate property than a condo, but less than a single-family home.
The HOA role
The Homeowners Association (HOA) is a governing body, usually a non-profit corporation, that enforces community rules and regulations known as Covenants, Conditions and Restrictions (CC&Rs). The HOA is funded by mandatory monthly fees and is responsible for maintaining all common areas, and often the exterior structure, landscaping and sometimes even the roof of the townhomes themselves.
The tenant profile: who rents townhomes?
Understanding the target tenant is crucial for assessing rental demand and potential income. Townhomes typically appeal to a specific demographic that values the blend of space, community and relative low maintenance.
Young families
Townhomes often offer more square footage and a better layout (multiple stories, sometimes a small private yard or patio) than similarly priced condos. This extra space is highly attractive to young families with one or two children who are not yet ready or able to afford a detached house. They also appreciate the safety and community feel often associated with townhome developments.
Millennials and first-time renters
Millennials, who are increasingly delaying buying their first home, often seek high-quality, modern rental properties close to urban centres or transport links. Townhomes provide an excellent bridge between a small flat and a large house, offering independence and space at a more accessible price point.
Empty nesters and downsizers
Older individuals and couples whose children have left home often look to downsize from a large family house. They desire less maintenance, but still want more space and privacy than a flat can offer. The professional management of exterior upkeep by the HOA is a major selling point for this demographic.
Corporate and relocation tenants
Due to their proximity to employment hubs and their 'turnkey' nature, townhomes are often favoured by companies looking for short-to-mid-term corporate housing or by individuals relocating for work. The amenities (gyms, pools) commonly found in these communities add significant appeal.
Pros: why invest in townhomes?
The advantages of townhome investment often address the pain points associated with other property types, creating a favourable investment profile.
Lower entry cost vs. single-family homes
In many desirable areas, the purchase price of a townhome is significantly lower than a comparable single-family detached house. This reduced barrier to entry allows investors to:
- Enter the property market sooner.
- Acquire multiple units (portfolio diversification) for the capital required to buy one house.
- Benefit from a better Debt-to-Equity ratio.
Higher yield potential
While rent on a townhome may be slightly lower than a detached house, the initial lower purchase price often translates to a higher rental yield (Gross Yield = Annual Rent / Purchase Price). A smaller capital outlay to secure solid monthly income is a core attraction for cash-flow investors.
HOA-managed exterior maintenance
This is perhaps the most significant operational advantage. The HOA is typically responsible for:
- Roof repair/replacement.
- Exterior wall maintenance and painting.
- Landscaping, snow removal and communal area upkeep.
For an investor, this dramatically reduces the time, stress and unpredictable cost of exterior maintenance, simplifying property management.
Community amenities
Many townhome developments feature high-value amenities such as swimming pools, fitness centres, clubhouses, and secure entry. These features enhance the tenant experience, justify higher rental prices and keep units highly competitive in the rental market.
Strong appreciation in suburbs
As city centres become prohibitively expensive, demand is booming in well-connected suburban areas. Townhomes in these locations – offering a taste of the suburban lifestyle with urban convenience – have shown strong price appreciation, particularly with the post-pandemic shift in working patterns.
Cons: risks & challenges
No investment is without risk. Townhomes present specific challenges that investors must understand and mitigate.
Monthly HOA fees
The mandatory monthly HOA fee is a non-negotiable expense that can range from a modest sum to several hundred pounds. This fee directly reduces your net operating income (NOI). It is critical to factor this expense accurately into your profit calculations.
Special assessments
Special Assessments are one-off, mandatory fees levied by the HOA to cover the cost of major, unexpected repairs or capital projects that the regular reserve fund cannot cover (e.g., a major plumbing replacement for the whole community or storm damage). These can be a substantial, unanticipated expense that can seriously dent an investor's profit margin.
HOA rental restrictions
A significant risk is the presence of HOA rules that restrict or cap the number of units that can be rented out. If an investor buys a townhome only to find there is a waiting list to rent it, or that the association strictly forbids rentals, the investment strategy is instantly undermined. Always verify rental rules before purchasing.
💡 Pro tip: check out our guide to short-term rental rules and regulations
Less privacy
Compared to a detached house, townhomes offer less privacy due to shared walls and close proximity to neighbours. While many tenants accept this trade-off for the lower cost, it can be a source of noise complaints or disputes, requiring a more proactive management approach.
Slower appreciation vs. free-standing homes
While townhomes do appreciate, they can sometimes lag behind the capital growth of single-family detached homes, particularly in highly desirable, low-density areas. This is often due to the limitations on expansion or renovation (due to HOA rules) and the fact that land ownership is less extensive.
Townhomes vs. other property types
Choosing a townhome means consciously opting against other available property types. Here is a quick comparison of the three major residential classes:
Single-family homes
| Feature | Townhome | Singe-family home |
| Purchase price | Lower | Higher |
| Capital appreciation | Moderate/Strong | Strongest |
| Exterior maintenance | HOA managed (Low investor effort) | Owner managed (High investor effort) |
| Privacy | Lower (shared walls) | Highest |
| HOA fees | Yes | Generally no |
Condos
| Feature | Townhome | Condo |
| Purchase price | Often comparable | Often comparable |
| Ownership | Owns land & structure exterior | Only owns interior space |
| Resale market | Often broader appeal (feels more like a 'house') | Can be limited to certain age groups/lifestyles |
| Flexibility | More flexibility for internal renovations | Highly restricted by building structure |
Multi-family
A multi-family property (e.g., a duplex or small apartment building) involves owning two or more units within one building. The key distinction is that with a multi-family property, the investor is both the owner and the de facto "HOA," controlling all maintenance, leasing and operational decisions. This offers maximum control and potentially higher cash flow, but comes with a massive burden of maintenance and management complexity compared to a townhome.
The HOA factor: due diligence checklist
The HOA is the single biggest variable in a townhome investment. Thorough due diligence here is non-negotiable.
Reviewing the CC&Rs and bylaws
The CC&Rs, or Covenants, Conditions and Restrictions (CC&Rs), define what owners can and cannot do. A meticulous review is essential to check for:
- Rules on paint colours, external modifications or landscaping.
- Restrictions on parking, noise, and pet policies.
- Enforcement mechanisms and fines.
- The overall stability and governance structure of the association.
Checking the reserve fund solvency
Special Assessments are one-off, mandatory fees levied by the HOA to cover the cost of major, unexpected repairs or capital projects that the regular reserve fund cannot cover (e.g., a major plumbing replacement for the whole community or storm damage). These can be a substantial, unanticipated expense that can seriously dent an investor's profit margin.
Rental caps and waiting lists
As discussed, this is critical. Obtain written confirmation from the HOA that rentals are permitted, and confirm the current percentage of rental units versus owner-occupied units. A low rental cap might be a red flag.
History of special assessments
Ask for the HOA's financial history, specifically looking at the last 5-10 years. A history of frequent or large special assessments suggests poor long-term financial planning, high maintenance costs, or a reserve fund that is structurally underfunded.
Managing townhome investment
Even with exterior maintenance handled by the HOA, the interior and the tenant relationship remain the investor's responsibility. Efficient management is the key to maximising profit.
Self-management vs. property management
- Self-management: Saves the property management fee (typically 8-12% of gross rents) but requires the investor to handle all tenant vetting, rent collection, internal maintenance coordination and tenant complaints.
- Property management: Ideal for investors who live far away or have a large portfolio. They handle the day-to-day, but it costs a significant portion of the cash flow.
Tenant experience
Regardless of the management method, the tenant experience is paramount. A high-quality experience leads to longer tenancies, fewer vacancies and tenants who treat the property with respect – all of which boost your NOI. This is where tools designed for modern communication and information delivery come in.
As a townhome investor, you must provide your tenant with a single, clear and always-accessible source of information. This includes details like:
- HOA rules that impact the tenant (e.g., garbage collection times, parking rules, amenity access codes).
- Instructions for interior appliances and systems (e.g., boiler, thermostat).
- Guidance on handling noise, pests, or common-area issues.
- Emergency contact numbers (for the owner/manager and the HOA).
Juggling paper binders, emailed PDFs and text messages is inefficient and frustrating for both you and your tenant. A Touch Stay digital guidebook consolidates all this information into a beautifully designed, mobile-friendly app.
By providing crystal-clear instructions, you drastically reduce time spent answering repetitive questions, enhance the tenant's feeling of being looked after, and ensure adherence to HOA rules.
Ready to save hours of management time and increase tenant retention with seamless communication?
Handling maintenance requests (interior vs. exterior)
One of the biggest time-wasters is misdirecting maintenance requests:
- Exterior/common area: The request (e.g., roof leak, communal lighting) must be reported to the HOA management company.
- Interior: The request (e.g., clogged sink, faulty appliance) is the investor's responsibility.
Your digital guidebook should clearly detail which issue goes where and provide the direct contact details for both. This saves you being unnecessarily involved in HOA-related issues and ensures interior issues are fixed promptly, boosting tenant satisfaction.
How to evaluate the numbers
Emotional buying has no place in property investment. Every townhome must be evaluated rigorously based on its potential to deliver a solid financial return.
Calculating net operating income (NOI)
NOI is the core metric for evaluating profitability. It is calculated by:
Gross Rental Income – Operating Expenses = NOI
Operating expenses must include:
- Property taxes
- Property insurance
- HOA fees (monthly)
- Property management fees (if applicable)
- A contingency for vacancy (e.g., 5% of gross rent)
- A contingency for interior repairs/capital expenditure (e.g., 5-10% of gross rent)
The lower maintenance burden of the townhome due to the HOA means your internal repair contingency might be slightly lower than for a detached house, but never omit it.
Cash-on-cash return expectations
For investors using finance (a mortgage), the cash-on-cash return is crucial as it measures the pre-tax cash flow against the actual cash invested (deposit, closing costs, etc.).
Annual Pre-Tax Cash Flow ÷ Total Cash Invested = Cash-on-Cash Return
Due to the higher yield potential (lower entry price) of townhomes, a good cash-on-cash return often falls between 8% and 12%, though this varies hugely by location. This is often more competitive than comparable single-family homes.
Maximise your cash-on-cash return by minimising operational costs. Clarity is profit. See how a digital guidebook can simplify your management and save you money.
Exit strategy: resale demand
Consider the long-term viability of the townhome. While they may appreciate slower than houses, there is a consistently strong demand from first-time buyers and downsizers, making for a reliable exit strategy. Look for developments near good schools, commuter routes and amenities for the highest resale value.
Frequently asked questions
