If you have ever considered investing in real estate, then you have probably noticed that there are two main types of investments: houses and apartments. While both tend to be long-term investments, their financial outlooks are very different.
Factors to consider while investing in apartments vs. houses
Rental Income
The monthly income you get by renting your property is referred to as rental income or rental yield. This will help you cover your miscellaneous monthly expenses, including maintenance costs, insurance premiums, and any repairs related to the property. It is a major source of passive income.
Rental income can vary significantly between an apartment and an independent house. They are usually higher for apartments. If your apartment is in a busy location well connected with transportation links, then there are chances of getting an increased rent. If you are investing in flats in gated communities with various amenities like a pool, sports arena, gym, and parking lots, then your rental income can go staggeringly high over a period of time.
However, the rental income for houses may not be as lucrative as that for apartments, considering the luxurious amenities and security aspects.
Capital gain
The amount of capital growth a property achieves over a period is termed a capital gain. In simple terms, it is the appreciation rate of a property. Most investors consider the capital growth percentage as a key parameter for building wealth.
Houses naturally have a higher capital growth rate compared to apartments. The land value of houses appreciates over time, which is not the case with an individual apartment. A real estate investment consultant can improve your capital growth by helping you choose the best investment property.
Real estate trends
Being aware of the real estate market is of the utmost importance before making a purchase. If you are investing when the economic conditions are down, then tenants are most likely to choose affordable places to rent. There will be a high probability for tenants to shift their places of residence due to job changes for increased pay. In such situations, investing in luxurious apartments or bigger houses is not advisable. Consult a real estate investment expert in your locality to know about the current trends.
On the other side of the coin, if you invest in a house when housing and property taxes are high, it can significantly impact your returns. Inspect the market conditions, tax brackets, and economic health of the nation before investing in a house or an apartment.
Maintenance costs
The upkeep and maintenance costs of a single-family home are much higher compared to a single flat in an apartment. You need to oversee pest control, furniture costs, garden and lawn issues, seepage issues, drainage issues, street menace, and other such problems when it comes to investing in a house. Whereas if you own a single flat, the maintenance costs will be shared among other owners of the building. Contrarily, if you are buying out the whole apartment with multiple flats, then maintenance costs can be high.
Pros and Cons of Investing in Apartments vs. Houses
Benefits of investing in houses
- Houses typically have a higher appreciation value over time.
- They are a reliable source of rental yield, and the occupancy rates are high as houses are mostly preferred by families.
- They have greater flexibility for renovation and expansion, as you can build an extra outhouse or a room on the terrace.
Cons of investing in houses:
- The rental yield is low for houses.
- Houses have high maintenance and upkeep costs.
- The initial investment is higher because of the land value.
Benefits of investing in apartments:
- The rental income is typically higher for apartments.
- They are easier to manage and maintain as the costs are shared.
- Less burden in terms of repairing the sewer lines, painting the gutters, or even mowing the lawn.
- You can create a sense of luxury in apartments with advanced amenities.
- There are no space restrictions in apartments. Including a department store or a playground for kids, will not be a problem.
Cons of investing in apartments:
- The land value is lower compared to houses.
- The capital growth is less for investors.
- The potential for alterations is considerably lower.
- The competition for apartments is normally higher due to greater demand and supply.
Wrapping up
Real estate investment is a surefire way to build wealth. It is always wiser to choose the desired type of real estate investment depending on your goals and requirements. Both houses and apartments have their own pros and cons. Go for the one where there is low risk and higher returns.
