When making your first real estate investment, thinking about what kind of property you should buy is essential.
There are major differences between renting a house and renting an apartment, so make sure you are aware of them before you make a decision. Here are the factors you should consider.
One of the most significant differences between a house and an apartment is size. A house, which is a single-family dwelling, will typically offer much more space for your tenants. Lots of the time, this also includes an outdoor space. When marketing your rental property, these features can be very attractive to potential tenants.
Depending on where you live, the demographics of your tenant pool will vary. If you want to make your property family-friendly, a house is your best bet. Apartments are usually smaller and work better for younger people (college students, single women, bachelors, groups of friends) with a tighter budget. It’s all about knowing your area and who is living in it.
Although houses offer a larger living space, many apartments offer the benefits of included amenities in the complex. Lots of apartment complexes have gyms, pools, laundry facilities, and convenience stores located right on the premises (or within close proximity). This is awesome for people who are active, social, and like to work out. The added convenience is a great incentive for potential tenants to rent your property.
Houses, on the other hand, which offer more size, will typically offer other amenities like a garage or fenced-in yard. This is perfect for people who have multiple vehicles, kids, or pets. In addition, houses usually feature amenities like dryers, washing machines, and dishwashers right inside the unit, which can be essential for certain renters.
As mentioned previously, houses often provide the comfort and safety of a fenced-in yard, which is awesome for tenants with pets. Making your property pet-friendly can be immensely helpful when looking for prospective tenants since so many people treat their pets like family. A house allows more freedom for the pet and pet-owner, while an apartment has more restrictions.
Some apartment complexes do not allow pets or have weight limits for them. Also, it’s rare to find an apartment complex that also has a dog park or off-leash area where the dog can roam freely. It will be much more difficult for tenants to take their dogs out on walks, which may also lead to more “accidents.” Regardless, pets are a big part of people’s lives, so it’s important to make it part of your investment decision… and your lease.
Different lifestyles call for different kinds of living spaces. Someone younger, looking for nightlife, and a vibrant, active community, would most likely benefit more from an apartment in the city. Apartment living provides a little less privacy and less space, so it’s not ideal for everyone. A home can offer the comfort of suburban living, with more privacy (that means not having your neighbor on the other side of the wall) and much more space, which is great for families with children and pets.
Tenants have a lot more flexibility when renting a home. Houses also offer the warmth of a cozy, neighborhood vibe, since they’re typically located in residential areas, away from the hustle and bustle. Think about the area you are looking to invest in and who is living there. What is the profile of the average renter in your location? Make sure you do this kind of research before picking a property and marketing it to potential tenants.
Another detail to consider is the cost of the property. Obviously, when you’re making an investment, money is a huge factor. A house will almost always cost more than an apartment of equal size. However, the amenities that come with a single-family dwelling may be well worth the cost for you and your rental business. Utility bills in apartments tend to be lower than those in apartments as well. However, cost also factors into rent — and if the value of a property is higher than that of another, you will be able to charge more rent.
When investing in your rental property, you’ll also have to think about the amount of maintenance that will be required. In a house, the maintenance is usually left up to the tenants. However, you can’t always count on your tenants to clean up. More space will mean more floors to sweep, more windows to wash, a bigger lawn to mow, and a larger garden to tend. If you have a good tenant, then this part of renting out a house will be easy. You’ll only have to step in if any big repairs need to be made — like replacing an appliance or fixing a broken pipe. Although, a tenant’s failure to comply with the lease and maintain the premises may cause you some issues in the future.
When renting out an apartment, you (or your property manager) are usually responsible for all of the maintenance requests. Beyond not destroying the place, tenants in apartments will usually call their landlord management to do any kind of maintenance in the unit. Also, because the apartment is located in a complex, there is general maintenance for the grounds of the property — like landscaping, painting, pressure washing, etc. If you don’t mind managing this aspect on your own, then an apartment may be more rewarding.
The amount of rent you are charging is also a crucial element of your decision-making process. When making your real estate investment, you’re going to want to think about the profit you will generate. All of the factors discussed previously will help you decide on the monthly payment amount. If you compare the monthly rent in one area, for both houses and apartments, you will notice that apartments tend to be more affordable. This means most renters who don’t have big families will usually choose an apartment.
However, keep in mind that the rental rates depend on supply and demand; when the real estate market becomes oversaturated with houses for sale, most homeowners will choose to rent out their property. This is where things get tricky since the rates will decrease and more people will begin to consider renting these homes. Keep track of the ongoing trends in the real estate market to help make your decision. Compare properties on an MLS (multiple listing service), like Zillow or Trulia.
Knowing the Benefits and the Risks
If you consider all of the factors above, you’ll be able to make the best decision for your real estate endeavor. Here’s a summary of the benefits and the risks of renting each kind of property:
- Offer the convenience of on-site amenities like pools, gyms, basketball/volleyball courts, laundry facilities, and/or convenience stores
- Good for young students, small families, couples, and people with active lifestyles
- Usually cheaper
- More space, more comfort, and more privacy
- Personal outdoor spaces which are great for big families with kids and dogs
- Require less maintenance on the landlord’s part
- Small and not as private, meaning they’re not ideal for pets or big families and there could be some issues with noise/messes
- Require more maintenance on your part
- The monthly rent amount will most likely be lower
- Does not offer the convenience of certain public amenities
- Cost more to purchase
- Leaving the maintenance up to your tenant can be risky
At the end of the day, you have to weigh the pros and cons of each potential investment. What is going to be the most profitable for your rental business?