Investors looking to further grow their capital look through a wide variety of investment opportunities, real estate being one popular route. The stock market is another option, but real estate often offers more security because of its higher returns for fewer risks. This is why it is a preferable choice for those looking to diversify their income.
Still, there are so many ways to go about investing in this realm that it can become confusing, especially for first-time investors. One question that often arises is this: what is a better investment, apartments or houses?
There is not one clear answer to this question, as the right route will ultimately depend on a number of factors. Here is a guide on knowing which type of investment is the best for you today.
How Much Can You Afford?
The first consideration you must take into account is how much money you are capable of putting into this investment. Here is what you need to know about the financial differences in investing in apartments and houses.
Apartment complexes tend to be more expensive.
When investing in multi-family properties, you will inevitably have larger upfront expenses since you need funding for several units in one go. This is a common setback for first-timers, as not everyone is prepared to put in a large amount of money from the get-go. Should this be a route you remain interested in taking, canvass for various apartment loan programs to get the best rates and payment terms.
You also need to prepare for the maintenance costs of managing a few different units in one go. Being in charge of multiple units means ensuring that each one has functioning appliances and furniture even through vacancies, which can entail more costs.
But houses may offer less in returns.
Investing in one rental home as opposed to multiple apartment units means that when the house is vacant, you earn no extra income. Having multiple apartment units, on the other hand, allows you to make up for vacancies when other units are occupied.
A steady stream of income through your rental properties also gives you the ability to cover maintenance costs, rental taxes, and other related expenses without having to take money from your other income sources.
How Much Time and Effort Can You Invest in It?
Aside from your financial capacity, you also have to assess how many hours and how much work you can put into managing your rental properties.
Managing apartments is potentially more convenient.
One good thing about managing a set of apartment units is that you only have to go to one place to do your usual checks and make sure everything is in order. Depending on its location, this takes away the work of traveling long distances to visit the properties.
However, along with this convenience is the possible stress of being responsible for multiple apartments. This means staying in contact with multiple tenants, who will all have different needs and concerns that need to be addressed. You need to have a system in place for effective coordination with the various residents in your units.
Managing homes could be simpler, but it depends.
When you have just one rental property to manage, it simplifies the process of contacting tenants and keeping track of payments, concerns, and the like. However, adding homes to your investment property portfolio obviously entails more responsibility on your end. When you manage multiple homes, it means having to drive or commute to different locations just to visit them.
Another thing to note for rental homes in different locations is that real estate laws vary. You have to understand the expectations for taxes, landlord-tenant relationships, and even home renovations in each state your homes are located in to avoid issues.
What Are Your Main Goals?
Real estate is one of the best places to invest your money in, but it is not without its share of work and patience.
To make wise investment decisions in real estate, you have to look at your finances, your long-term financial goals, your experience, your ability to commit to the work of property investment, and even your preferences. These factors will help you decide if the time is now to go big and invest in multi-family properties or if you should start with one rental home to gain a solid footing for future investments.
There is no shame in starting small. The speed at which you pour money into your investments has little to do with the success it guarantees. Just put in the work you can manage today, then work your way towards your financial goals.