Are Apartments A Good Investment?
Apartments have been a fairly good investment for the better part of a decade. That is still the case. Other options may have become more tempting over the past few years, but there are fairly fundamental economic trends that ensure apartments remain a good choice for many investors.
The Big Picture
Humans need homes to stay safe, healthy, and comfortable. That is a fundamental fact of life, and no amount of technology or economic development is going to change that. Apartments are an affordable way for many people to get a home, and the relatively flexible nature of renting appeals to people who aren’t quite ready to settle down. That means that there will always be plenty of demand for apartments. The precise level of demand can fluctuate over time, but there will always be some.
Of course, some investments are better than others. Those who take the time and put in the effort to get the most out of their properties will generally see a much bigger return on their investment than those who do not.
Find Ways to Add Value
Increasing the value of a property is a key part of getting a good return on a real estate investment in the modern market. Most investors will want to consider paying to add amenities that appeal to renters in their area so they can command higher prices and attract more residents. Lowering operational and maintenance costs, or even looking for tax incentives can also be very effective ways to get a better return.
Choose Locations Carefully
It is always best to look for areas with a steady demand for housing before investing in apartments. In general, renters are looking for places with easy access to amenities and jobs. As with all investments, the price is also a factor. Examining local trends is a key part of determining the value of an investment.
Do the Research
Apartments are still a fairly good investment, especially for people who understand how to get the most out of them, but the golden rule of investing still applies: Do the research. Every region’s market is unique, looking at all of the options and honestly assessing them is vital for success. Investors who do their research and pick their investments carefully are the most likely to find success with apartments.
With incomes soaring in urban hot spots like San Fransisco, Seattle and Los Angeles, housing prices appreciated significantly as well. However, large year over year real estate returns in these markets increases the risk of an eventual crash, leading investors to search for new real estate markets for growth and/or stability.
Financial advisers are increasingly recommending cashing out of these markets now, rather than wait until the market has peaked. Although the stock market has performed well in recent years and the unemployment rate is very low, most job growth has taken place in the lower ends of the income distribution. This means that there should be a steady demand for apartments and cheap housing, while expensive housing markets may start to decline. So, where should investors be looking to for their next opportunities? Here is a list of the most promising real estate markets in 2019:
This city is seeing the largest job growth on the list, at 4.7%. This figure has increased from 3.8% only 6 months ago. With home prices increasing slower than incomes (10% vs. 20%), this market looks due for a solid upward swing. With home prices rising fast, however, investors would be wise to move quickly.
Another Florida town, Jacksonville is seeing 3% job growth and also has relatively affordable housing at its current market levels. The average home price is $270,000, well below average for the best potential markets.
San Diego, CA
This Southern California city is attractive for many reasons. San Diego boasts perhaps the best weather conditions year round of any American city. It also has the biggest difference between home price increase and income increase (7% vs. 21%) on the list. This suggests that although prices are relatively higher ($514,000 average), there is still a lot of room for the market to grow.
Silver Spring, MD
This Maryland town is a great opportunity for investment in apartments. With its close proximity to Washington, D.C, there is a steady demand for housing in the area. Housing prices are quite high in the area, so people will be looking to rent here. The average rent in Silver Springs is lower than that of nearby Washington, D.C’s ($1,398 vs. $1,646), which suggests there is room for growth here as well.
Airbnb is undoubtedly leading the way for the vacation rental ownership market
. Airbnb is a worldwide sensation with properties located in 190 countries. As of November of this year (2018), 640,000 people
have invested in and are hosts of an Airbnb property. As others see the popularity of the site and its competitors, many wonder if they should jump on board and invest in their own vacation rental property.
Investing in an Airbnb Property
Many people that would’ve otherwise never thought to rent out their home or apartment are looking into buying a piece of property just to get in on the popularity of Airbnb. Thinking of doing the same? Before you invest there are a few considerations you will want to take in account:
1. Research the Local Rules and Ordinances
Before purchasing a property for short-term rental, research the rules and ordinances in the area. Some cities enforce certain rules that limit short-term rentals in favor of long-term rentals. Depending on where one lives, they may find that investing in an Airbnb property breaks the law.
Moreover, some local rules force renters to pay additional taxes and fees on the income generated with their Airbnb. Similarly, these renters may also be forced to obtain certain licenses to be able to rent out their property.
2. Ensure that the Property Can Also Be Used for Long-Term Renting
Buying a property specifically for Airbnb? Be sure that the property is also available for long-term renting. As business is always ebbing and flowing, it isn’t feasible to solely rely on revenue from short-term rentals.
3. Keep Tax Rules in Mind
Renters that set their Airbnb property lower than the market value may find that they are disqualified from using the property as a tax write-off. Before setting the rates or the property, research the IRS tax code and ensure that the property is in accordance with federal guidelines.
4. Review All the Expenses of Your Short Term Rental
While renting a room in one’s apartment on Airbnb requires little additional effort, renting an entire property tack on extra responsibility for the renter. In addition to maintaining the property by repairing and cleaning it, the owner must pay for the water gas, cable, electric, and Internet. All of these should be reflected in the price of the rental.
Don’t invest in an Airbnb if all the aforementioned considerations haven’t been made. Failing to consider these four things can turn a potentially profitable investment into a loss.