Whether you’re looking for a buy to rent property to give yourself an extra income with prospects of selling for a larger amount in the future, or simply looking for a place that you can call home from now on, the chances are you already have a pretty clear idea about the property class you’re going to go for. That is to say, you probably already know if you want an apartment or a house!
But if you’re in the earlier stages of such an investment decision then you may not have decided what kind of property you’re looking for. This will be especially true for people who are looking to buy property that they can rent out to other tenants as opposed to living in it themselves. It’s important to know what exactly drives supply and demand when it comes to these kinds of residential properties. It’s also important to understand how supply and demand end up affecting the value of these properties.
Supply versus demand
There’s a problem found in the development stages of many apartment buildings, otherwise known as condominiums. Essentially, building one of these things means that the developer has a lot of properties to sell off or rent out all at once. That may sound good, but the laws of supply and demand can make things a little more tricky. In order to sell those apartments as fast as one would like, you’d have to ensure that there was enough demand in that area for such apartments. You’ve got the supply part down, that’s true (assuming that apartments are affordable – those are the general apartment type that people are demanding, after all!), but your supply may end up outweighing the demand.
So if you’re looking at investments in a developing complex, you’re going to want to keep that in mind. Let’s say you’ve bought an apartment in a soon to be completed condo. It’s projected to earn you quite a bit in monthly rent, and the property is certainly luxurious enough to justify such thinking. But if, a few months after opening, there are still a lot of apartments in there that haven’t been rented out, even if they’ve been purchased, then the value of those apartments are going to decrease.
The right new launch condo – that is, an apartment building making its commercial debut on the real estate market – can be of tremendous value to you as an investment. Just make sure you get a good feel for the area to ensure there really is demand for apartment properties. As long as the price is right and the condo as a whole is desirable and close to many amenities, you probably won’t have too much cause for concern.
Houses, on the other hand, don’t tend to suffer from these kinds of problems. Unless the development is a large-scale one – that is, a brand new neighborhood comprised of several houses. Even then, because the buildings are independent of one another, there is much less risk of vacant properties causing a lot of damage to the value of a single nearby property.
When people are looking for a new place to live, many find themselves trying to decide between two options. (Let’s assume we’re not talking about a big family here; we’re more likely to think about a single person or perhaps a couple.) They could look for an apartment in the city, or they could see if they can cut costs by getting out of the city and finding a house in a more obscure neighborhood. It’s important not to assume that any given person is more likely to go one way or the other based on cost.
The fact is that city living is made much more affordable if you’re actually in the city. Not only that, but people who definitely want to live in an apartment instead of a house are going to find better deals in the city due to the heavier supply. A house somewhere outside the city – assuming you still need to go to the city on a regular basis – could end up costing you more in the long run when it comes to travel expenses.
If you plan for your investment to be city-based, then looking into apartments can definitely be the wiser option. There’s simply more demand for them. However, it is worth remembering that price fluctuations can hit some city suburbs harder than others. Research the property life cycles over the past few years in the area of the city you’re interested in, lest you want to risk having to charge tenants more for rent than you think they may be willing to pay.
Here’s something a lot of people neglect to think about when it comes to property value! If you have noisy and disruptive neighbors, then the value of a home can be decreased. This is especially true if neighbors have very loud pets or even seem to be unable to keep their children quiet. (I actually have a friend who attempted to sell an apartment in a complex in which the outside communal area was used by noisy children for most of the weekend – three prospective buyers rejected the sale once they learned about it!)
So how close you are to neighbors, and how likely you are to interact with them, is going to have a bigger impact on property values than you might have imagined at first. And when it comes to independence from your neighbors, houses are often much more reliable. Apartments have you in much closer proximity to your neighbors. Depending on which floor you’re living on, you may have neighbors to the left and right as well as above and below you! So a noisy neighbor in a house-based suburb is much less likely to affect property value than a noisy neighbor in an apartment complex.
That being said, condos tend to offer a stronger sense of security than a house in a bad neighborhood. Criminals are much less likely to break into apartments because it simply isn’t as easy an prospect as a home tends to be. If an apartment can be entered directly from the outside, then it will be via only one side, and even that side will usually be away from the ground floor level. Houses can often be accessed through at least three of its sides. Depending on the neighbourhood you’re in, this can cause quite big differences in the value of these properties.
Let’s say you know of an area in a city that’s fairly desirable, but is also known for the occasional crime. Maybe violence has been known to occur on the streets, or home invasions take place a few times a year. You may consider writing that area off completely, right? But property classes aren’t at equal risk of crime, and therefore won’t be subject to equal decreases in value as a result. If you have an interest in that area regardless, it may be worth looking at the apartments there as opposed to the houses. Apartments won’t be so negatively affected by crime rates as homes are. (Unless, of course, the criminality is taking place inside the apartment building!)
As you can see, there are a lot more factors that come into play when it comes to property value differences between these property classes than many people consider. Most people only think about the immediate desires of specific demographics – older people are more likely to want a house, younger people are more likely to want an apartment, etc. But, as an investor, you need to think a little deeper than that and consider all of the variables.