Apartment vs. House: Which Is the Better Investment?

With cranes dotting the skylines and construction crews hard at work, the real estate market is absolutely buzzing these days. As of March 2024, a staggering 934 multifamily properties and 1,485,000 new homes are under construction across the nation. This surge in development presents a wealth of investment opportunities for those looking to enter the rental property market. 

One key decision residential investors face is whether to invest in an apartment unit or a single-family house. In this overview, we'll cover the key differences between the two, helping you to make a decision that aligns with your goals and maximizes your return on investment.

Understanding houses vs. apartments

Both apartments and houses can provide returns through monthly rent, but let's look at the broader definition and general statistics for each:

Houses

A house is a standalone residential building. It often has multiple rooms, such as a kitchen, bathrooms, living rooms, and several bedrooms. According to Statista, there are 82 million stand-alone homes in the U.S., and investors typically own these properties outright or purchase them with a mortgage and upfront downpayment.

Apartments

An apartment is a residential unit within a building or complex that accommodates multiple people seeking convenient apartment living arrangements. It typically consists of one or more rooms, including a kitchen, bathroom, living room, and bedrooms. There are currently 23 million apartment units in the United States, and investors buy these properties using commercial real estate loans.

Comparing apartments and houses

So, which property type is best for your real estate investment business? Let's explore 10 key considerations.

1. Investment goals

Each property type offers distinct financial advantages and challenges, which can influence the overall success of your investment strategy. Here are the key points to consider:

• Cash flow: Apartments can offer higher cash flow due to multiple rental income streams. Renting out several units can reduce the financial impact of a potential vacancy in one unit, providing a more consistent income. Conversely, houses rely on a single rental income, meaning that cash flow stops if the house becomes vacant.
• Appreciation: Houses typically appreciate at higher rates due to the scarcity of land and the desirability of private living spaces. Apartments can also appreciate through value-add strategies.
• Risk diversification: Apartments often allow investors to diversify risk across multiple units. A single vacancy has a lesser impact on overall income, providing a buffer against financial fluctuations. Houses represent a single investment point, where vacancy means no income, thereby increasing risk exposure.

2. Ownership

Houses are typically owned by a single entity or individual with full control over the property who is responsible for all associated maintenance, taxes, and compliance with local regulations. Tenants renting houses generally deal directly with the private landlord, allowing for more personalized interactions.

Apartment buildings may have more involved ownership configurations. A single entity might manage renting out all units themselves, or these properties can consist of individually-owned units, as is the case with condominiums. Apartment renters usually interact with property management companies that handle operations for these larger investments.

3. Physical structure

Houses often feature expansive living spaces and private outdoor areas such as backyards and personal driveways.

Apartment buildings, on the other hand, share walls and floors with neighbors. These properties can have shared facilities such as laundry rooms, fitness centers, and communal lounges.

4. Space and layout

Houses generally provide more overall square footage, appealing to tenants who desire more space. The average size of a house in the U.S. is approximately 2,299 square feet.

In contrast, apartments are more compact, offering smaller living areas and often limited outdoor access. The average size of an apartment can vary significantly by location, from about 691 square feet in Seattle to around 991 square feet in cities like Scottsdale, Arizona.

5. Maintenance

A single-family house rental typically requires less maintenance than an apartment complex.

House maintenance can include:

• Landscaping: Regular gardening, lawn mowing, and landscaping help keep the property's exterior presentable.
• Exterior maintenance: This includes painting, roof repairs, and gutter cleaning to maintain the structure and appearance of the house.
• Interior maintenance: Repairs inside the home, such as plumbing issues, appliance maintenance, and updating fixtures.
• Key systems: Critical systems like ventilation and air conditioning must be regularly serviced and in good working order.

Apartment building maintenance can include:

• Common areas: Many apartments have common spaces like hallways, lobbies, and recreational areas.
• System maintenance: Large-scale systems like central heating, elevators, and building-wide plumbing require periodic checks and repairs.
• Exterior maintenance: This includes facade repairs, window cleaning, and maintaining building security features.
• Landscaping: Upkeep of any outdoor areas, such as courtyards or rooftop gardens.
• Safety inspections: Owners must conduct regular inspections to comply with building safety regulations and laws.

6. Amenities

Common amenities in houses might include private yards, garages, and custom interior upgrades such as high-end kitchens and bathrooms.

Many apartment complexes have shared facilities like fitness centers, swimming pools, and laundry facilities. These amenities help attract a wide range of tenants by providing conveniences, but the maintenance required is more involved than with a single-family home.

7. Privacy

Houses usually offer increased privacy, as individual properties have outdoor space between them. Furthermore, this separation allows for areas like gardens or backyards exclusively for the tenant’s use. 

Apartments have shared living environments, which can mean closer proximity to neighbors and common areas like hallways, elevators, and outdoor spaces.

8. Cost structure

With houses, landlords handle all costs directly associated with the property, including property taxes, insurance, and repairs. These expenses, tied specifically to one home, can result in higher per-unit costs due to the lack of cost-sharing opportunities.

Due to the number of units and the scale of the property, an apartment building has a more complex cost structure. However, the economies of scale in apartment complexes can lower some of these costs on a per-unit basis.

9. Scalability and growth

If you plan to grow your portfolio, consider the differences in scaling between apartments vs. houses:

Apartments

• Capital intensive: Scaling an apartment investment portfolio often requires a significant capital investment to acquire additional properties.
• Centralized operations: The concentrated nature of units in one location simplifies operations when expanding within the same community.
• Resource leverage: Once expanded, it's possible to leverage existing teams and resources across larger units to streamline management and maintenance tasks.

Houses

• Capital efficiency: Scaling a portfolio of single-family rentals typically requires less initial capital per property.
• BRRRR strategy: You can leverage growth approaches like the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) to buy new properties.
• People-intensive: Houses require active management for each property, especially across different neighborhoods, making achieving economies of scale more challenging.

10. Appealing to tenants

When considering an investment in residential properties, it's helpful to understand the general preferences of various tenant groups. This information can guide investors on how better to meet the needs and expectations of potential renters:

• Young professionals or students: This demographic tends to gravitate toward the low-maintenance lifestyle and amenities of apartment renting, especially in the city center close to jobs and social activities.
• Growing families: Many seek single-family homes for additional space, privacy, and access to personal outdoor areas, which appeal to family activities and children’s play.
• Empty nesters: With children moved out, some renters prefer to downsize again to a low-maintenance apartment where they only have to pay maintenance fees for access to services after years of owning their own house.

Which is better: an apartment or a house?

There isn’t a definitive "better" option between investing in an apartment or a house. Both have advantages and drawbacks, and the ideal choice depends on the investor's specific goals, resources, and preferences. Here's our perspective comparing the two:

Apartments

Advantages

• Economies of scale: You can achieve cost efficiency through the shared maintenance of common areas and amenities, such as landscaping, pools, and fitness centers, which reduces the per-unit cost of these services.
• Rental income from multiple units: The ability to generate income from several units within the same property enhances financial stability and can lead to a higher overall return on investment.
• Lower per-unit cost: Investing in an apartment complex spreads the cost over multiple units, which can lower the per-unit investment compared to single-family homes.
• Property management: Most apartment investors hire a property management company to handle operational tasks. This reduces the owner's burden and can increase the property's efficiency.

Disadvantages

• Tenant relationship management: Managing multiple tenant relationships can be demanding and time-consuming, requiring strong communication and conflict resolution skills.
• Financial structuring: Handling the detailed financial management of large multi-unit properties often requires substantial administrative effort and advanced financial expertise.

Houses

Advantages

• Property appreciation: Properties may increase in value, providing significant returns on investment.
• Tenant management: Allows for closer oversight and quicker responses to tenant needs, enhancing satisfaction and retention.

Disadvantages

• Maintenance costs: You are solely responsible for all maintenance and operating costs.
• Rental income: Rental income is limited to one tenant at a time.
• Management intensity: More hands-on management of property and tenant relationships is required.

Making your final decision between a house or apartment

Investing in rental properties, whether apartments or single-family homes, offers promising opportunities amidst the current real estate boom. These two residential options have distinct characteristics that cater to different investment goals and preferences.

As you evaluate your priorities, risk tolerance, and desired level of involvement, an apartment unit may be appealing if you seek a more hands-off approach with shared maintenance responsibilities. A house may better suit investors looking for greater control and the potential for personalized enhancements. The choice between an apartment or a house will depend on your unique circumstances and long-term vision.  

Conducting due diligence and seeking professional guidance will help you make the best decision for your business. With the right strategy and an understanding of the differences between these property types, you can find success in real estate investing.

Apartment vs. house FAQs

Are apartments more profitable than houses?

Apartment complexes yield higher profitability than houses due to economies of scale and multiple income streams. However, factors like location, market conditions, and management efficiency can significantly influence overall returns.

Is it smarter to rent a house or apartment?

Choosing between renting a house or an apartment depends on personal needs such as space, privacy, and budget. Consider factors like desired amenities and maintenance responsibilities when making your decision.

What is one advantage of renting an apartment or a house?

Renting an apartment often offers amenities like fitness centers and maintenance services, while a house provides greater privacy and space.