If you’re a real estate investor, you might be asking a few questions. One of them might be whether a house or an apartment will be the better investment. We’ll take a look at the pros and cons of investing in each one.
This guide will be great for new real estate investors who are starting out. Once you finish reading this, you’ll want to get in touch with one of the best Austin real estate brokers. Teifke Real Estate is your realtor that will help you find the place you want to invest in and get a good return on your investment.best Austin real estate brokers
Let’s discuss the pros and cons of purchasing a house or an apartment as an investor.
Renting out apartments: The Pros
To begin, we’re going to look at apartments. We’ll discuss the pros of investing in a multi-family building such as buildings with different apartments ranging from a studio to a 2 or 3 bedroom apartment. Here are the pros:
Favorable Returns
The more people that occupy your apartments, the more rental income you’ll get. So you get favorable returns. It’s important that you meet the number of tenants you need in order to meet your financial goals.
Make sure you have enough money left over every month. And you should put that leftover cash to good use. Remember, you have expenses that you need to deal with each month.
Determine how much the rent is for studio, 1 bedroom, and 2 bedroom apartments. Fulfill the vacancies where needed and make sure it’s enough to meet the financial goals each month or year.
You get Tax Benefits
As a real estate investor, you’ll get a good amount of tax benefits. If you are renting out apartments, you can be able to write off a lot of your expenses. These will include but are not limited to maintenance and management fees, marketing expenses, and more.
This will relieve you of most tax burdens. This means more money in your pocket and the ability to expand your real estate portfolio over time.
They can be Managed Easily by Others
You don’t have to be able to manage the apartment buildings yourself. You can hire a property manager that can handle the usual tasks. These include but are not limited to providing security, hiring contractors and maintenance services, and screening for tenants among others.
You can hire an individual property manager or a firm that will handle the tasks. Either way, it will be a good thing to outsource since you can’t be on every property you own all at once.
Cons of Renting out Apartments
Non-liquid Assets
If you invest in apartments, one of the disadvantages is that it’s a non-liquid asset. This means you will need to sell or refinance the property if you need the money. The process can take quite a while including finding a buyer, the purchasing process, and closing the ideal.
The potential for less Profit
You may have a lower profit margin if you’re renting out apartments. This can happen if you don’t have enough tenants that will make the threshold of your monthly financial goals. Which means you will need to fulfill any of the vacancies that are available.
This will be the only way to mitigate the issue of low profits. Again, expenses will need to be paid. And the last thing you need to do is find yourself bleeding cash rather than retaining it.
Renting out homes: The Pros
Great for Families
Single-family homes will be more appealing to families. Especially those with children. There will be plenty of space both inside and outside.
That doesn’t mean someone can rent a home by themselves or with roommates. But if you’re someone looking to rent a home rather than buy, a single-family home just might be something up your alley. Especially if you don’t feel like living in an apartment where there won’t be space for your children to play in.
Flexibility in Renovation
When it comes to renovating your property, you’ll have more flexibility. That’s because if you want to renovate an apartment building, you’ll need to go through local authorities to get permits and permissions. With a house, you don’t need this.
This means if you want to increase the property value, then you can be able to do renovations. This may be great if you are planning on selling the property or increasing the rent for the next tenant that will soon move in.
Potential capital Growth
If you are looking for capital growth, it will be easy to achieve it with renting out houses. A house can appreciate with value over time. This will also depend on factors such as the location of the property itself.
Cons of Renting out Houses
Increased upkeep Costs
If you are considering investing in a house, the upkeep costs will be more than an apartment building. This also includes having to pay insurance premiums. Other upkeep costs include pest inspections, groundskeeping, and other tasks.
For a single-family property, it will cost more compared to an apartment building.
Price
Simply put, an apartment building will cost less than a house. If you have the cash, buying a house as an investment property would make sense. If you are starting out, you may want to stick with apartment buildings for the time being.
Final Thoughts
In the cause of houses versus apartments, it’s important to know what to invest in. If you are a beginner, start out with apartments. You’ll deal with less expenses and get a better return on investment (so long as you fulfill the vacancies).
Once you become more seasoned and experienced, you can consider adding houses for your portfolio. Experienced real estate investors are aware of the increased expenses and costs that may arise. So if you have plenty of financial breathing room, you can start purchasing houses in the neighborhoods of your city that you see as valuable.