LOS ANGELES, CA / ACCESSWIRE / December 9, 2017 / Developing townhouses is a popular process that some families are choosing to undertake in order to get some extra cash. Learn how to subdivide your land into the construction of multiple townhouses while still living on the land yourself.
These quick and easy steps will show you how to get started.
What is a Townhouse?
If you aren't too familiar with townhouses, it's best to learn what differentiates them from other types of dwellings. Townhouses are most commonly defined as shared-wall housing, which means that all units share at least one common wall with each other.
The townhouse itself is constituted as a singular building, which can be owned by you and rented out to various tenants. Keep in mind that you also own the land as well – you are purely selling the room space for a profit.
There are several measures you can take to ensure that you are building your townhouse in a legal and standard way. To make money developing townhouses, you must follow these five steps:
1. Increase the Value of Your Investment
You can request a tax assessment of your property in attempt to reduce your operating costs. The more you can force appreciation, the smaller of a purchase you can make. There are several tips you can employ to cut corners as well. Be more efficient with your usage of water, gas, and other natural resources. Negotiate the lowest rates possible for repairs and building services.
2. Estimate Your Capitalization Rate
Be aware of your capitalization rate before you invest. A simple formula to determining this rate is:
• Divide your property value by its net income.
• Subtract operation costs from the resulting amount.
• The rest is your capitalization rate.
3. Analyze Your Market
Before taking the final step to rent out your townhouse, do some real estate research to see what the current market is like. Invest in other units to rent out to see what prices are going for. You can get in touch with an agent to get a glimpse of realistic rental prices. Be sure to factor in all of your remaining fees, such as:
• Operating costs.
• HOA fees.
• Maintenance and repairs.
• Taxes.
• Mortgage payments.
4. Try a Real Estate Investment Trust
Invest in an entity that can share your real estate for tax advantages. You will find that over 90% of your taxable income can be disbursed to shareholders. Make sure to find a trust that specifically works with townhouses to ensure the accurate form of real estate holdings.
5. Get Approval and Begin Construction
Start gathering quotes from builders and construction workers for your project. While this may be an overwhelming task, there are a variety of phenomenal builders out there who can get the job done right. Make sure to request a copy of insurance certificates to ensure liability.