Cheap apartments aren’t always a smart investment. Before you buy that two-bedroom apartment that you think is a steal, you should consider the pros and cons of low-cost housing for rent.
Why should you invest in an apartment?
Many investors believe that it’s better to invest in homes because they anticipate that the land will appreciate indefinitely. However, an increasing number of people are preferring to live in apartments due to their convenience to amenities, as well as the rising cost of real estate. Apartments continue to be a popular choice, especially among millennials that are delaying homeownership due to student loans.
Here are some reasons why you should consider investing in an apartment for rent:
Apartments are more affordable than single-family homes, making them ideal for first-time investors. They also allow investors with deep pockets to invest in multiple properties at once to diversify their portfolios.
Appeal to Renters
Apartments appeal to a wide range of tenants. You won’t have trouble attracting tenants as your audience is as good as it gets. Plus, should you decide to sell your property in the future, you can drive the price up because the demand will undoubtedly be high.
Another advantage of investing in an apartment unit is that costs to maintain the building are shared by everyone. The catch is that the fees can rise if the building has better facilities. Fortunately, the cost can be offset by the opportunity to raise the rent.
Should you invest in a cheap apartment?
If you’re planning on investing in an apartment, you should. The question, though, is what type of apartment should you invest in?
You probably think that cheap apartments are a steal. After all, they let you save a lot of money, right? Unfortunately, that isn’t always the case. Cheap apartments are tempting thanks to their price tag, but that shouldn’t be the only thing to consider when investing in real estate. So, if you think cheap apartments are always a wise investment, think again.
Let’s take a deep dive into the pros and cons of investing in cheap apartments for rent:
Pros of Investing in Cheap Apartments
Ideal for Cash Investors
Let’s say you want to invest in real estate but can’t get a loan. If you have the cash, you can still become a property investor without going through the lending process. You can make a cash purchase since the apartment is incredibly cheap.
High Return on Investment
If the cheap apartment is in an excellent location, you can charge a higher rent. You’ll likely have to repair the apartment so that it’s rent-ready, but you’ll be able to recoup the cost almost immediately. This means that the return on investment (ROI) will be much higher than, say, a single-family home in the suburbs.
However, it’s crucial that you invest in the right location. It’s worth mentioning that a low-income neighborhood isn’t always a bad place to buy real estate. For instance, if there are infrastructural developments in the area, the apartment’s value will likely increase in the near future.
Pro Tip: Hire a South Florida property management company to keep tabs on neighborhood developments. They can help you determine if a cheap apartment in a low-income neighborhood has high-profit potential.
Purchase Multiple Properties
Another reason why you should invest in cheap apartments is the opportunity to buy more than one property. As an investor, your aim is to add more and more properties to your portfolio. The fastest way to do this is by finding cheap properties. For example, if you have $400,000, you could either buy one home in an affluent neighborhood, or buy multiple properties in low-income neighborhoods.
If you’re ready to search for cheap apartments, consider enlisting the property management services of a reputed property management company. They have access to off-market properties, plus they can negotiate prices on your behalf.
Think you won’t have trouble renting out your home during a recession? We hate to burst your bubble, but it is possible. Take the COVID-19 pandemic, for example. Due to unemployment, those that didn’t relocate to the suburbs had to search for cheaper housing in the city. During a recession, the demand for cheap apartments can rise. So, if you don’t want to deal with vacancies even during an economic decline, a cheap apartment is a safe choice.
Cons of Investing in a Cheap Apartment
The problem with purchasing cheap apartments is that people often associate them with bad neighborhoods. Even though the rent may be reasonable, if the neighborhood has a high crime rate, people probably won’t want to live there. That is why, when choosing a cheap apartment, you should always conduct a rental market analysis. A property management company can help you with this.
Think you can find a cheap apartment that’s fully furnished and freshly painted? Think again. There’s a reason why cheap apartments are cheap. You’ll likely have to deal with severe property damage that will cost you thousands of dollars. While you will be able to recover the costs when you rent it out, repairing it will require months’ worth of work. This means your property will be vacant for a long time. This can be a bummer if you need the cash ASAP.
Low Resale Value
If your cheap apartment isn’t in an ideal location, you’ll have a hard time selling it unless the area improves. Consider hiring a property management company in South Florida that can attend city council meetings for you. This way, you can ensure the profitability of your prospective investment property.
The Bottom Line
Apartments are great investments in general, but you’ll have to be careful about where you buy. While it is a “shortcut” to expanding your portfolio, investing in the wrong properties means you probably won’t profit at all.
As with any investment, real estate comes with risks that can be mitigated through in-depth analysis. If possible, hire professional property managers that can tell if a cheap apartment has potential or if it’s nothing but a bad decision.