The debate as to whether you should lease apartments or houses has been around for decades. The truth is, one isn’t necessarily better than the other; it all depends on what your resources are and how much work you’re willing to do. To shed more light on the topic and help you make the best financial decision, let’s take a deep dive into the pros and cons of leasing houses versus apartments.
Leasing a House: Pros
When you buy and lease a house, you own that property, which means you have the final say on the renovations and changes you want to make. There is no community title and community property that the body corporate owns. When you don’t have to get approval from the body corporate, you’re free to renovate and add value to the property as you like.
Typically, families and older adults are the ones renting homes, as they need the space and have the financial resources to do so. On average, these renters want a longer lease and are generally more responsible. Because of this, you’re more likely to collect rent and get paid regularly, in full, and on time, resulting in more secure and consistent returns.
Potential for Passive Income
One of the main reasons people prefer to invest and lease homes is the potential to earn passive income. If you use some of the rent you receive to hire a property manager, they can take care of all the work for you. While this does cost you a portion of the overall income, it saves you from a lot of wasted time and undue stress.
Leasing a House: Cons
High Entry Costs
For the amount of money it takes to buy and lease a home, you could potentially buy multiple apartment units. Technically, while apartment buildings may be bigger, they have less land and, therefore, fewer land costs. If they do have land, the body corporate typically owns it and pays for community property expenses. This is not the case with houses, as you would be responsible for all land and property expenses. Overall, the high entry price makes it difficult for beginners to break into the field of investing in houses.
While renting homes does mean you’re likely leasing to responsible tenants who will pay you consistently, your income depends on a small set of individuals. For example, if a tenant provides you with $1,500 of rent per month but they don’t renew their lease, you need to fill that vacancy as soon as possible. If you don’t, you lose that income completely until you find a new tenant.
Possible HOA Fees
On top of the high entry costs, it’s very possible that you’ll be paying a considerable amount in homeowner association (HOA) fees. While not every neighborhood has one, the nicer ones often do. So if you want to rent in a nice area, you should be aware of this additional cost.
Leasing an Apartment: Pros
Diverse Property Types
When you invest and lease a home, there are very few different types of single units to invest in—mainly condos, vacation homes, and traditional houses. Apartments, however, can come in many shapes and forms, such as duplexes, triplexes, student housing, retirement communities, and more. If you’re looking to diversify your portfolio, apartments are the best options.
In recessions, economic breakdowns, and market crashes, people still need places to live. Often, people must sell their homes or downsize. This means a huge portion of people who experience financial strain during economic hardship will turn to multi-family apartment units. Therefore, if you lease apartments, you can know that your living spaces will always be in high demand.
Lower Maintenance Costs
When you invest in apartment units, all fellow strata title property owners share the cost of maintenance. You also have partial ownership of common property, which are the common areas of the complex, such as the gym or foyer. A body corporate will take care of most common areas and strata titles properties for a fee, so you only have to maintain your individual apartment and utilities.
Leasing an Apartment: Cons
Lack of Say
The corporate body must first approve any renovations or improvements you want to make to the apartment. Even if you know the improvement would benefit the property and help make more money for everyone involved, there’s still an approval process that can take quite some time. You lose the autonomy you would have if you were leasing a home. So if you’re looking to invest in property to be your own boss and not have to turn to others to make decisions, investing in apartments may not be best.
Although you could hire a property manager to help, apartment leasing is still management intensive. You have to deal with a lot of people, all of whom communicate and work in different ways, and you have to manage individual leases and maintenance requests. Ultimately, you need to be able to work under pressure and juggle quite a few hats if you want to lease apartments.
High Body Corporate Fees
As mentioned, the body corporate will manage and maintain a good portion of the strata and community property, but this comes at a cost. Not only do you have to handle your own unit, but you have to share the cost of maintaining the rest of the property via body corporate fees. Additionally, these fees can vary widely depending on the size of the property and where it’s located. They can be as low as $1,000 a year or as high as $7,000 a year.
Now that you know a little bit more about the pros and cons of leasing houses versus apartments, which investment is right for you? If you want to learn more about investing and leasing in single-family units, Excalibur Homes is here to help! We can put you in contact with one of our highly experienced property managers, so you can decide if leasing a home is right for you. And if you have a house for rent in Nashville, we can start helping you get the most out of your investment today!