Choosing between buying and renting is a difficult decision, made even tougher by the housing market, rent rates, lease lengths, property taxes, neighborhoods etc. Bear in mind that buying an apartment isn’t merely about putting money down and mortgage payments.
You must consider HOA fees, property tax, and preservation at your expense, which may make renting a favorable option. If you’re debating whether to rent or buy an apartment, this guide will shed light on the pros and cons.
Pros of Buying an Apartment
Operational Simplicity
In comparison with other kinds of real estate investment, apartments are comparatively easy to operate. You’ll find that you have clearly defined responsibilities and your tenant relations are straightforward.
This differs considerably from leased investments, for instance retail centers and offices where locating tenants can be expensive and time-consuming. Furthermore, the nature of every tenancy can be extremely different.
Investment Returns
Even comparatively low-yielding and conservative apartments provide healthy returns compared to other asset groups. Numerous investors find the cash flow appealing. The cash flow can range from a few percent to the mid-teens annually depending on how you purchase your apartment.
However, you’ll be paying your loan down, and this adds to the returns you’ll obtain when you sell the building and cash in the equity or when you pay off the loan and obtain an instant increase in monthly revenue.
Although the principal reduction may not appear like a major contributor to your returns, remember that your mortgage raises its impact because the growth is comparative to your down payment.
Tax Breaks
When you spend money on your investment-management fees, advertising, and maintenance repairs, you’ll get to write off most of those costs against your rental revenue. In the event that your investment loses money, you may possibly deduct up to $25,000 from your non-rental revenue.
You can only do so if you’re in charge of the property management-handling tasks such as vetting tenants and advertising vacancies.
On the other hand, if you employ a manager, you can only subtract losses to the limit of your rental revenue. However, you can claim leftover losses in the subsequent year’s taxes.
Cons of Buying Apartment
Time
You’ll find that property management can be time consuming because you must screen prospective tenants’ criminal records, credit histories, and references from previous landlords before presenting a lease.
Once a tenant moves in, you must handle complaints and make the necessary repairs or employ somebody who will. In the event that the tenant damages your property, breaches the lease, or declines to leave, you could end up in a claims court.
Although hiring a management firm will free up your time, bear in mind that the fees will undoubtedly affect your profits.
Emptiness
A drawback of ownership is that you’ll still incur expenses in case your investment sits empty. In the event that the rental market has declined and you cannot find a tenant for a couple of months, you’ll still need to make mortgage payments in the absence of rental income. Moreover, you’ll still need to pay property taxes and insurance.
Final Thoughts
Whether you decide to buy or rent an apartment comes down to what suits you and your family. Either way, both have advantages and drawbacks. Although making such a decision can be overwhelming, this invaluable guide will provide insight into the matter.
For more information on the benefits and drawbacks of buying an apartment, contact us at Apartment Agents or leave a comment.