Considering whether to invest in single-family homes or an apartment complex is a crucial decision for landlords looking to expand their portfolios. The choice between renting out a house vs. an apartment involves various factors that can significantly impact your investment strategy.
What are the key differences in property investment, tenant demographics, and landlord obligations when renting houses and apartments? Understanding these differences is vital to making an informed decision.
In our comprehensive guide, we’ll explore the nuances between renting a house vs an apartment, offering insights into the unique prospects each type of property presents for landlords. From financing considerations to the dynamics of the tenant market, we’ll dive into the specifics that can shape your investment journey.
Also, we’ll examine the advantages and disadvantages for tenants when choosing between an apartment and a house, addressing common questions to provide a well-rounded perspective on these two types of rental properties.
Table of Contents: Houses vs Apartments
Dive into the differences between renting out apartments vs single-family homes for landlords, the pros and cons of apartments vs houses for tenants, and get answers to frequently asked questions.
- House vs Apartment vs Condo
- Difference Between Renting Out Houses And Apartments
- Apartments vs Houses: Pros And Cons For Renters
- FAQs – Houses vs Apartments
- Which is more expensive to rent, a house or an apartment?
- Can I have pets in an apartment or house?
- What utilities are tenants responsible for in a house vs an apartment?
- Is the lease term different for houses and apartments?
- Is it more profitable to rent out houses or apartments?
- How does tenant turnover compare between houses and apartments?
- Houses vs Apartments: Which Is Right For You?
To clarify what we’re talking about, a house is typically a stand-alone building with its own separate lot, offering more privacy and space, often including a yard. The ownership of a house is usually single-party.
An apartment is a unit within a larger residential building or complex, sharing walls, floors, or ceilings with other units. Apartments are managed as part of a collective property, with common areas and amenities provided by the landlord or property management company.
Apartments are sometimes sold under leasehold agreements in which the “owner” purchases a long lease, for example, 999 years, from the developer and has primary control over the apartment. However, the freehold of the apartment remains with the developer and can place some restrictions on what the owner can do.
A condo, or condominium, is similar to an apartment in terms of physical structure — a unit within a larger building — but differs in ownership. Condos are individually owned, and the owner can rent out their unit. While the individual unit is privately owned, common areas and facilities are jointly owned by all the condo owners in the building and managed by a homeowners’ association (HOA). Condo owners pay association fees for the maintenance of these shared spaces and structures. Condos are also sometimes sold as leaseholds.
There are other types of residential properties, but these are the ones seen most often in the world of rental real estate.
As a landlord, there are several key differences between renting out houses versus apartments, starting with what the property looks like as an investment and extending to tenant market and landlord responsibilities.
It tends to be easier to get a mortgage for a house than an apartment, and lenders tend to offer a lower loan-to-value ratio on apartments than houses. There are several reasons for this.
First, while most houses are freehold, which means you own the house and the land and have full legal rights over the property, many apartments are leasehold.
This means that instead of buying the apartment’s freehold, you secure a long-term lease on the apartment of between 99 and 999 years. But your lease gives you legal rights to the apartment so you can renovate, rent, sell, and so forth. But you wouldn’t be able to, for example, knock out a wall. The freeholder would block this action because it would undermine the integrity of the surrounding apartments.
Lenders can be wary about giving mortgages on leasehold properties, especially if fewer than 75 years remain on the lease. You can often extend the lease, but this can be expensive. This question of lease time can also affect the apartment’s resale value.
Also, you may be liable to pay ground tax to the freeholder in addition to the mortgage. This is often around 1-1.5% of the property’s yearly value.
Even when an apartment is a freehold, because the land is split, it can be difficult to determine who is responsible for things such as maintenance. This is another factor that makes an apartment a less attractive investment for mortgage lenders.
However, since apartments are more affordable, they can make it easier to expand your property portfolio and scale your rental business, especially if you acquire multiple units in the same complex. Owning multiple units can offer more opportunities to add value through renovation and adding amenities.
If you are considering buying an apartment building, you will need a commercial rather than a standard loan. Commercial loans usually have higher interest rates and require a larger down payment. You may also have to present a business case for return on investment to secure the loan, making the process more complex.
Single-family homes tend to be a relatively safe investment as their value appreciates fairly consistently over time. Still, their resale value can be sensitive to market changes and local school ratings.
Houses and apartments tend to attract different kinds of tenants. Single-family homes tend to attract families who want to stay longer. They are more likely to put down roots in the community and want to stay in the area to remain in the school district.
Rents for single-family homes are also higher since they offer more space and privacy and tend to have attractive features such as a yard and plentiful parking. Many people who rent houses often go on to buy.
Apartments demand lower rents because of the more limited space, and they tend to have a higher tenant turnover, with people deciding to make a change more often. This can lead to more periods of vacancy. However, apartment renters tend to keep renting rather than buy. In cities, there tends to be a robust market of apartment renters.
Did you know more people are renting in the United States today than at any point since 1965? You can find more 2023 renting statistics here.
While landlords are always ultimately responsible for the upkeep and habitability of their buildings, responsibilities for things such as maintenance and repairs can differ between houses and apartments.
Lease agreements for houses often give responsibility for maintenance, such as yard work and even external repairs, to the tenant. The landlord may only be called on to step in for more structural issues.
Lease agreements for houses must state who is responsible for maintenance and upkeep. Landlords also need to pay attention to local rules established by groups such as homeowner associations (HOAs).
Landlords tend to have more responsibilities when it comes to apartments, especially groups of apartments, as there are common areas to consider. However, apartments can also represent economies of scale since improvements made for one apartment may benefit all.
If you have multiple apartments in the same complex, you may have a standard lease agreement for all tenants with minor adjustments for the individual apartment. The agreement should also lay out additional rules regarding common areas. The landlord can often find themselves responsible for managing relations between individual tenants and the community.
Apartment buildings may also be subject to additional regulations on amenities, safety inspections, and occupancy limits that landlords need to be aware of and uphold.
While landlords need proper insurance for single-family homes, insurance can be straightforward, though it should include liability coverage for any injuries on the property.
For apartment complexes, landlords need comprehensive insurance policies that cover the individual apartments, common areas, and loss of income for expected vacancy periods. With multiple tenants, problems tend to increase, so landlords should be extra careful in managing risks.
From the perspective of renters, there are various pros and cons to consider when choosing between signing a lease agreement on an apartment or a house.
- Affordability: Apartments generally have lower rental rates than houses.
- Maintenance: Maintenance responsibilities typically fall to the landlord or property management company, reducing the burden on the tenant.
- Amenities: Many apartment complexes offer amenities such as swimming pools, fitness centers, and security systems.
- Utilities: Often, apartments are more compact and may have a lower cost for utilities.
- Community Living: Apartments can provide a sense of community, and meeting neighbors in shared areas is easy.
- Location: They are often located in urban areas, providing closer access to city amenities, public transportation, and workplaces.
- Space: Apartments are generally smaller than houses, with less storage space.
- Privacy: Sharing walls with neighbors can lead to noise issues and a lack of privacy.
- Parking: Limited or congested parking can be an issue, especially in urban areas.
- Restrictions: There may be more restrictions on pet ownership, renovations, and personalization of the space.
- Outdoor Space: Private outdoor space, such as a yard, is rare in apartment living.
- Space: Houses typically offer more living space, including multiple bedrooms, bathrooms, and outdoor areas.
- Privacy: Detached houses offer more privacy with no shared walls.
- Personalization: Renters can often personalize a house more than an apartment (within the lease terms).
- Family-Friendly: Houses often have yards and are located in residential neighborhoods that may be more suitable for families.
- Parking: A house usually comes with its own garage or driveway.
- Cost: Renting a house is typically more expensive than an apartment, both in rent and utilities.
- Maintenance: Tenants may be responsible for the upkeep of a yard, snow removal, and other maintenance tasks.
- Less Mobility: Houses typically come with longer-term leases, offering less flexibility to move.
- Amenities: Unlike apartments, houses do not usually come with amenities like a gym or pool.
- Commute: Houses are often farther from city centers, potentially leading to longer commutes.
For renters, the choice between an apartment and a house often comes down to personal preferences regarding space, cost, location, and the type of lifestyle they desire. Those who prioritize convenience and cost may lean toward apartments, while those who value space and privacy may prefer to rent a house.
Below are answers to some of the most frequently asked questions about renting houses vs apartments.
Generally, houses are more expensive to rent than apartments due to larger space, more privacy, and often an accompanying yard or garage.
This depends on the landlord’s policy. Apartments may have stricter pet policies due to space and noise concerns, while houses may be more lenient but might still have restrictions.
In a house, tenants are often responsible for most utilities, including water, electricity, gas, and sometimes garbage collection. In an apartment, some utilities may be included in the rent, or the cost may be lower due to shared services.
Lease terms are more about the landlord’s policies than the type of dwelling. However, landlords of houses may prefer longer leases to reduce turnover, while apartments might offer more flexibility.
Apartments can be more profitable in the long run due to the ability to rent multiple units in one location, but single-family houses can yield higher rent per unit. The profit depends on the local market, the property’s condition, and the management efficiency.
Houses often have lower turnover rates, as tenants may stay longer due to the space and privacy a house provides.
Apartments can have higher turnover, especially in areas with a transient population, like near universities or urban centers.
Now that you know the main differences between renting out houses and apartments, it comes down to which investment makes the most sense for your portfolio. It will depend greatly on your location and the demand for rental properties in your area.
You can browse all our helpful tools and key resources for landlords here.
Please Note: RentPrep does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, or accounting advisors.