Dense housing is on the rise, resulting in more multi-family housing permits. Since the United States is in the middle of a housing crisis, that trend is likely to continue.
So, as a real estate investor considering renting your property, should you choose a rental apartment or a single-family home?
There are benefits to both, and it comes down to your experience level, location, goals, and expectations. Here's what you need to consider.
You must consider the capital required to purchase an apartment or a rental home. Additionally, you have to think about the price and the financing available to you.
You might only need a 5% down payment on a single-family home. You'll generally need 15%-20% down for a rental apartment.
So, even if the final price is the same, what you need to put down initially varies. How much capital you need is usually what influences an investor's final decision.
You should also consider capital growth, which is the increased value of your investment over time.
New landlords may prefer single-family rental homes, as there's less management involved. You only have one family on the property, which means fewer repairs, less paperwork, and fewer worries about vacancies.
However, you're also bringing in less rental income. When you invest in a rental apartment, you collect from several tenants each month.
You can make handling a larger building easier with the right property management company on your side. They handle everything from tenant screening to maintenance and much more.
Understanding the current and future rental market conditions is key to estimating property appreciation.
Perhaps you're looking for a single-family house in an area that would make for excellent short-term rentals. If you're in an up-and-coming neighborhood, that property will continue to rise in value.
Get an evaluation to see your property's fair market rental value.
Marketing and Screening
Generally, owners have to deal with a higher turnover in apartment rentals, as tenants may come and go as their needs change. If your target audience is primarily college students because you're near a university, they'll likely move out after graduation.
Vacancy rates can be a real challenge to handle, as it affects your rental income. When you invest in an apartment building, you'll have to do more marketing and screening. Thankfully, a full-service property management group handles tenant placement, which keeps vacancy rates low.
If you're a new investor, managing multiple tenants might seem intimidating. Consider your current experience level, your skills, and how much you're willing to take on.
If you have another job, for instance, will you be able to spend your weekends screening tenants, making repairs, etc.? Consider your goals for your investment, and outline your expectations.
Rental Apartment vs. Rental Home: Which Is Best?
In the end, both investments have their benefits. Whether you should invest in a rental apartment or a single-family home depends on your location, the current market conditions, the capital you have, and your goals.
Investing in rental property doesn't have to be a challenge. Here at 33rd Company, we can help you make the most of your Minneapolis or St. Paul property. Learn more about our management services and get a free rental analysis today.