A townhouse is generally an attached multifamily housing unit that shares walls with other dwelling units in the row. This type of property is usually two or three stories tall and may include features like a garage, small yard, patio, or balcony.
From single-family homes to townhouses, real estate properties can offer potentially profitable investment opportunities. This is why some investors may choose to develop townhouse rental properties.
How much does it cost to build townhouses? The answer is, it really depends. After all, the exact amount can vary depending on multiple influencing factors, such as the size and location of the units.
What Are the Most Common Types of Townhouses?
The specific type of townhouse can dictate the total cost of a building project. Among the most common townhouses are properties with an attached unit, which shares walls with other units in the development.
These tend to be the most affordable option, but can be less private than other types of townhouses. Other popular types of townhouses include:
- Traditional townhouse: A standalone housing unit that is attached to other units on either side.
- Duplex townhouse: Comprising two units attached side by side, this property typically only has one or two stories.
- Triplex townhouse: Consisting of three units attached on either side, triplex homes are similar to duplexes in that they often only have one or two stories.
- Quadplex townhouse: This property has four units attached side by side, offering the most living space of all types of townhouses.
A townhouse that is a detached unit, which does not share any walls with other units, is less common — and usually more expensive — than attached units. Its advantage is that residents can enjoy relatively more privacy and space.
What’s the Difference Between a Townhouse and a Condo?
Before making a purchase, prospective homeowners should understand a few key differences between townhouses and condominiums. Townhouse owners have rights to the land on which their property stands, so they effectively own the interior and exterior of their homes.
As a result, they are responsible for landscaping costs, as well as maintaining and repairing their unit. Another distinction is that townhouses usually have yards or outdoor spaces, unlike condos, which feature shared community spaces.
Owners of condos do not claim ownership of the land underneath their property, which belongs to the homeowners’ association (HOA). An HOA is an organization that helps manage shared living communities.
HOAs are common in condos, though they may oversee some townhouse developments as well. In general, HOAs manage the exterior finishes of buildings and larger common areas, such as the roof or grounds, while the homeowner is responsible for maintaining the interiors.
In addition, townhouses are typically attached to other houses on either side, while condos are usually part of a larger building with many units. This can affect noise levels and a resident’s level of privacy.
How Much Does It Cost To Build Townhouses
The overall cost of building townhouses may fluctuate depending on the size and location of the development. Larger developments in higher-cost-of-living areas are often more expensive to build than smaller developments in less heavily populated areas.
Typically, it costs around $111 per square foot to construct a townhouse. For example, if you were planning to build a development of 20 townhouses that were each 1,500 square feet, the estimated cost would amount to $3.33 million.
In urban areas, however, the cost of building a townhouse could cost up to an average of $135 per square footage. As a result, the price to develop a single 1,500-square-foot, high-end townhouse could total more than $200,000.
Of course, several other factors could affect the final cost of constructing townhouses, including the following:
- The type of construction: the average cost of stick-built townhouses ($115,500 – $237,500) tends to be higher than modular townhouses ($75,000 – $187,000).
- Townhouse style: Townhouses come in three main styles — traditional ($70-135/sqft.), stacked ($85-140/sqft.), and urban ($120-170/sqft.).
- Labor costs in the area: Different state and local laws, as well as labor agreements, influence local labor costs. For instance, the hourly mean wage for construction workers is much lower in Texas ($17.24) than it is in New York ($29.04).
- Any permits or fees required by the local government: While building permits and fees are generally always required, highly populated urban centers (such as New York, Chicago, or San Francisco) tend to have stricter requirements and more hefty fees for construction.
Here’s an example breakdown of how much it would cost to build a single townhouse:
Architect Fees (Added to Total): $17,325 – $30,375
Structural Engineer (Added to Total): $500 – $20,000
Contractor Fees (Added to Total): $41,250 – $50,625
Bathrooms: $6,600 – $8,100
Electrical: $16,500 – $20,250
Foundation: $14,850 – $18,225
Floor Structure: $19,800 – $24,300
Flooring: $4,950 – $10,125
Interior Finish: $9,900 – $20,250
Interior Features: $4,950 – $10,125
Kitchens: $13,200 – $16,200
Plumbing: $19,800 – $24,300
Roof: $16,500 – $20,250
Walls and Exterior Finish: $9,900 – $24,300
Windows and Doors: $8,250 – $10,125
Total: $204,275 – $307,550
For an accurate cost estimate, discuss your new construction project with a contracting company. Contractors can give a more specific price based on your project’s specifications.
How To Save Money When Building Townhouses
Real estate investors have to factor in labor, permit, and material costs when developing townhouses. And the national average cost to build a townhouse is between an average of $111 and $135 per square foot.
In order to save money on your new house, work with reputable home builders, and consider multiple bids before selecting one. Experienced contractors can help you stay within your budget and potentially obtain discounts on high-quality materials.
It could also help to compare prices for building permit fees in your municipality. Other ways you can reduce construction costs on a custom home:
- Use prefabricated materials: Prefabricated materials, such as drywall, can help decrease expenses and construction time.
- Build in phases: This means developing a few townhouses first, then adding on more as finances allow, which spreads out the overall cost of construction over a longer period of time.
- Take advantage of energy-efficient materials: Green materials can help to reduce the amount of energy needed to heat and cool the townhouses, potentially saving money in the long run.
Lastly, a large percentage of the total project expenses will go toward land costs. Look for land that’s already in a zone for townhouses, which can help you avoid the cost of rezoning land for your project.
What Are the Benefits of Building a Townhouse?
Townhouses provide an effective way for investors to generate a steady stream of passive income and build equity. By renting out a townhouse, the property owner can take advantage of rental income. Plus, the property can be sold for a profit when its value appreciates.
Investors may also want to build townhouses to diversify their real estate portfolio. In addition, townhouses tend to be easier to manage than other types of rental properties. They are typically smaller in size and have less exterior surface area than other property types like single-family houses.
How Can You Finance the Construction of a Townhouse?
In many cases, a construction loan provides the most accessible approach to financing a new home. This type of financing allows homebuyers to build a new property while ensuring that they are able to afford the monthly payments.
Construction loans are available from many lenders, including local community banks and larger financial institutions. Most of these lenders require applicants to have good credit and a standard 20% down payment.
It is also possible to work with a private lender that specializes in construction financing or an online lending platform like LoanBase, which has processed more than $750 million in loans. No matter which route you choose, compare interest rates and contractual terms before moving forward with any home construction loan.
Do Townhouses Appreciate Over Time?
Housing prices have risen in the past few years, compelling many to invest in real estate.
While detached single-family houses have remained a popular investment, an increasing number of people are looking into townhouses as an option. But do townhouses appreciate over time?
The answer is yes, but not at the same rate as single-family houses. Townhouse prices have increased at a slower pace than detached homes, but they can still be a good investment.
To judge the true rate of return on a home purchase, calculate all of the costs, such as taxes, insurance, maintenance, and repairs. Then compare the figure to the property’s current value.
Also, keep in mind many factors can influence the housing market, including supply and demand for housing, demographics, economic and wage growth, and inflation.
These can impact the value of real estate and lead to wide differences in appreciation rates.
For example, homes near public transportation tend to appreciate at a much higher rate than homes in neighborhoods without easy access to public transit.
Consider consulting with a real estate agent to get a better idea of industry trends and inform your investment strategy. Industry professionals can help you choose a neighborhood that suits your needs and advise you on the profitability of townhomes in your desired market.