Why Renting a Multifamily Townhouse Could be the Perfect Option

Multifamily Housing

Interested in investing in a multifamily townhouse or renting out the property you already own? Multifamily townhouses have been growing in popularity lately, and for good reason – they provide a great option for people who are looking for the best of both worlds.

They come with all of the amenities of an apartment complex but also have the privacy and space of a single-family home.

If you own a multifamily townhouse or considering it as an investment, taking a closer look at the benefits of renting it out is the first step. But first, let's first look at what a multifamily townhouse is and its popularity as a real estate investment.

What is a multifamily townhouse?

A multifamily townhouse is a type of housing that is becoming increasingly popular in the United States. It is a structure that contains multiple residential dwellings, each of which has its own separate entrance, kitchen, and living area. The dwellings can be apartment rentals, studios, or even single-family homes.

Multifamily townhouses are often seen as a more affordable and sustainable alternative to traditional apartment complexes. They are also seen as a more desirable option for young professionals and families.

This makes them perfect for people who want to live in a lively neighborhood with plenty of social opportunities but don't want to give up their sense of independence.

Additionally, multifamily townhouses are often situated in prime locations near parks, restaurants, and other attractions. This makes them a desirable option for people who want to be close to city amenities.

The multifamily market has continued to grow, and in 2020, the transaction value in this segment reached $140 billion, accounting for half of the commercial property market.

Top reasons for renting a multifamily townhouse

There are a number of reasons why multifamily townhouse owners should rent out their properties. The most obvious one is that it can help to offset the cost of owning the property. Here are the other reasons to rent your multifamily townhouse.

For many investors, a key advantage of investing in a multifamily townhouse is that they can avoid a second mortgage or the rental expenses of living somewhere else.

Reduce debt

Net operating income or NOI is the gross income from the property minus all expenses. For example, if the income from your multifamily townhouse is $500,000 and your operating expenses are $200,000, your NOI is $300,000. A multifamily townhouse has a high NOI that can take care of your debt payments, thereby reducing your debt burden.

Reliable income stream

The benefit of renting out your multifamily townhouse is inherent in the type of the property. While rental income from a single-family home can abruptly stop when the family decides to move, you can get a steady stream of income by renting your multifamily townhome.

Increased monthly income

When you rent out your townhouse, you can expect to receive a higher monthly income than if you were to live in it yourself. This is because you can charge more for rent than you would pay when it comes to mortgages and other associated costs.

Another reason to rent out a multifamily townhouse is that it can help to attract new tenants and increase the value of the property. When done correctly, renting out a townhouse can be a lucrative and beneficial venture.

Tax deductions

You may be able to take advantage of certain tax deductions when you rent out your townhouse. This can include deductions for things like repairs, advertising, and travel expenses related to the property.

That's not all. Multifamily townhome owners can also subtract the costs of maintaining, owning, and operating the property. Here are the expenses you can deduct from your tax:

Mortgage interest: If the multifamily townhouse is your first or second property, you can deduct up to $750,000 on mortgage interest. For investment properties, mortgage interest can be deducted as a business expense.

Depreciation: The IRS considers 27.5 years as the "useful life" of a property. The depreciation rate for most rental properties is deemed to be 3.66 percent per year. According to the IRS, residential property such as a multifamily townhome is profitable or useful only for 27.5 years. This means, as a property owner, you can deduct the depreciation cost for these many years. Calculating your property's depreciation amount is easy. Just divide the multifamily townhouse's worth by 27.5. For instance, if your property is worth $600,000, dividing this by 27.5 will give you $21,818 per year. This is the depreciation expense that you can deduct from your taxable income.

Improvements, repairs, and maintenance: Repairs such as replacing a light switch, a broken toilet, or painting can be deducted in the year that you pay for them. Improvements (such as adding a patio, roof, or garage) are not deductible in the same way as repairs. Instead, depreciating the expense can help you recover the cost of improvements.

Property taxes: Depending on whether you are an active or passive participant in the real estate rental business, you can deduct the property taxes as business expenses.

Travel expenses: If you need to travel to maintain your multifamily townhouse or collect rent, you can claim these travel expenses from your tax.

Other expenses: The following also qualify for tax deductions :

Lawn care
Advertising
Insurance premiums
Utilities
Independent contractors
Losses from natural disasters or theft
Professional services such as property management, tax preparers, attorneys

One way of ensuring your tax returns are filed on time is to invest in cutting-edge accounting software. This will help streamline your accounting and financial record-keeping, which allows you to get a view of your financial standing and file accurate tax returns.

While the IRS's Schedule E gives you the option to claim miscellaneous expenses, you will need to back up these claims with accurate record keeping. A property management system can help you store and manage documents that prove that you incurred these expenses.

Fewer repairs

A townhouse that is rented out will likely have fewer repairs needed. This is due to the fact that the renters are taking care of their own space and are not abusing the property.

Of course, not all tenants will ensure your property is maintained optimally. This is where tenant screening comes in. Investing in smart tenant screening tools helps ensure a thorough background check, including the credit score, eviction, and criminal records of prospects. With quick screening reports, you can fast-track the renting process and reduce the risk of property damage.

Proactive maintenance and a smooth workflow are important aspects of ensuring there are fewer costly repairs.

A modern property maintenance system can help you manage inventory, prioritize work orders based on their urgency levels, and collaborate with your maintenance team.

No long-term commitment

When you rent out your townhouse, you do not have to make any long-term commitments. If you find that you no longer want to rent it out, you can always stop. This is not the case with owning a property.

Invest in the right property management software

Multifamily townhouses are becoming an increasingly popular option for those looking for rental property. There are a number of reasons why renting a multifamily townhouse could be the perfect option for you, and this article explored some of them. However, managing a multifamily townhouse can be a lot of work. That's where investing in ExactEstate's property management software can help. Our software will automate many of the tasks, making it easier for you to manage your multifamily townhouse.