Deciding to invest in a real estate property is a smart choice towards securing a consistent source of income over the years. However, it is worth noting that real estate investing is an endeavor that has many paths and options in terms of decision-making. A common dilemma facing many real estate investors is whether they should be investing in house rentals or apartment rentals. The concern about which one is more profitable is valid. For first-time real estate investors, the lack of experience makes them wonder about where they should be spending their life savings.
House rentals and apartment rentals are completely different in terms of how they generate profit, their size, the appreciation rate, tenant profiles, and the options available. The truth is that the decision what to invest in shouldn’t be too confusing for any investor. While each type of rental investment has its pros and cons, the main aim of investing is making profit, avoiding vacancies, and expanding as a real estate investor. This is why apartment rentals make much more sense for first-time investors that house rentals. It is just that apartment rentals offer so much more in terms of their value for money.
Why You Should Invest in Apartment Rentals Before House Rentals
Apartment Locations Are More Central
In the most populated and vibrant cities around the United States, you will find out that the most central locations are mostly made up of apartments. These apartments offer more rental income for real estate investors compared to house rentals, which are mostly located in suburban areas around the city. The idea of rentals is obviously short-term gains in terms of how much rental income you can make per year. This completely makes apartments the better first step for real estate investors who are looking to bring in better returns on their investments.
Think of it in a logical way: owning an apartment rental that is in a central location leads to more potential tenants, while house rentals are usually demanded by a smaller portion of the population, namely families who are looking for bigger properties to rent.
House Rentals Are More Costly
This shouldn’t come as news to anyone. It is universally known that the average house is more expensive than the average apartment almost everywhere around the United States. The reason is that houses come with more space and the ownership of land along with the property. This makes a house more expensive than an apartment. But if you are purchasing house rentals, then the idea becomes somehow less appealing. If you are to purchase a house for $250,000 with the ability to rent it for $1,200 per month, compared to buying an apartment for $150,000 that has a rental price of $2,200 per month – which makes more sense to purchase for rental purposes? Obviously, apartment rentals are just better than house rentals.
If you have to pay more money as an initial investment for a house rental, then you will need more years to get your return on investment, because of the higher price and thr lower rental income that can be made.
Related: Are Furnished Apartments for Rent a Good Real Estate Investment Idea?
Short-Term Apartment Rentals
If you are looking to purchase a property in a location that has a high number of tourists or visitors such as Miami, Los Angeles, or Austin, then the apartment rental is the better choice simply because it offers you more. Due to house rentals being in less appealing locations for tourists, they grow out of favor on short-term platforms such as Airbnb.
Owning an apartment rental in a major city gives you the opportunity to make more rental income by using Airbnb. For example, in Los Angeles, the average price of an Airbnb rental per night is around $110 for an apartment, while the average price of house rentals in a non-central location is around $75 per night for an entire house. When it comes to short-term rentals and making money passively, it doesn’t matter if you own a bigger house or a smaller apartment,. What matters is the convenience and the location. This is what pushes the price up more whether you choose to use an Airbnb calculator or not for estimation.
Related: Where Can You Find Airbnb Properties For Sale?
House Rentals and Vacancies
Due to the tenant pool being much smaller when it comes to house rentals compared to apartment rentals, it makes vacancies a bigger issue for the former. House rentals can suffer vacancies from time to time because of the lack of tenants or due to a dip in the rental market. Apartment rentals are less likely to experience vacancies because they are more flexible and there is a bigger tenant population to choose from. Apartments in major cities, for example, can be easily shared between students or young workers. Sharing the rental costs amongst tenants makes apartment rentals more in demand within the younger generations in particular.
Related: How to Deal With Vacancies When Owning an Investment Property
Lifestyle and Professional Obligations
This is why the future of rental properties lies in big or growing cities. The way the world is expanding and how business, job opportunities, and the modern lifestyle are integrated into urban areas makes investing in cities better. While house rentals as an investment are a great idea for the long-term future and to generate money in the form of appreciation values (non-rental form of investment), it is hard to neglect how cities are getting more populated year after year. That overpopulation is causing rental prices in cities to hike up more with every passing year, and it is exactly why many people are interested in purchasing properties in urban locations that can bring serious money in a short period of time. And this basically means investing in apartment rentals, which are generally located in the prime locations in major cities.
A Case for House Rentals
While all the indications and patterns show a more favorable and profitable investment scheme by pursing apartment rentals, there is something that appeals to many real estate investors when it comes to house rentals. The ownership of a house rental in an urban area can be quite expensive, but being able to afford it can be an extremely profitable investment. House rentals in central locations are gold mines, especially for families who can afford them. They are guaranteed to be vacancy-free. And finally, their appreciation value will rise astronomically given how the real estate market is growing.