Homes, Condos, or Apartments — Which Type of Residential Property Should You Manage?
Property Management Varies Between Homes, Condos, or Apartments — Which Type of Property Is Right For You?
If you are involved in the property management game, you know many moving parts come into play during any given week or month. You deal with everything from tenant screening and placement, rent collection, maintenance, and even evictions, all while balancing cash flow to meet expenses and staying on top of tenant requests and legal requirements.
These demands stack up quickly and can get complicated unless you develop reliable systems to stay on top of the workload. While many property managers seem to fly by the seat of their pants, one reliable success strategy involves choosing a property type that suits your skill set and lifestyle.
Maybe you’re an “accidental landlord” who never planned to be a property manager. Perhaps you are just entering the rental investment market and need to get your arms around all the obligations that come with managing a rental property. When you understand how the property management load varies with different property types, you can decide where you’re most likely to thrive in the business.
Pros and cons of managing homes, condos, or apartments
Single-family home property management
Single-family homes are stand-alone properties that you rent out to a family or similar household group. Single-family homes are the most popular housing types for rental property investors. Some property managers find them easy to manage.
Tenants are usually interested in a long-term commitment. You won’t have to find and screen new tenants and fix up the property as often.
The households its resale value. A well-maintained house in a low-crime neighborhood rarely goes down in value. If you hold the property for a few years or more, you’ll often see steady appreciation.
Lower property taxes. Single-family homes enjoy lower tax rates than commercial or industrial rentals.
Lower maintenance costs. When you rent to a well-screened, responsible individual or family, you typically handle fewer maintenance issues, as this type of tenant often takes care of the property as if it was their own.
Vacancies reduce returns. When a tenant moves out of your single-family property, you are 100% vacant until you find a new tenant. That means no rental income to offset your payments for the mortgage and utilities.
Higher cost of entry. Single-family homes cost more upfront because they hold their resale value. As a rental owner, you have a larger downpayment than buying as a personal residence.
Apartment building property management
Apartment buildings or multifamily units house numerous individuals or families in separate units under a single roof. Apartment buildings are usually located in urban areas and suburban areas. Many property managers find it easier to manage more doors under one roof instead of individual houses.
Economies of scale. Whether you manage a duplex or a 200-unit building, you can leverage your time for day-to-day operations. Your process to find and screen tenants, manage repairs, and collect rents will be the same for multiple units as it is for one single-family house. You will profit more from rent increases because you can raise the rent across all units for a single capital repair on an apartment building and recover your cost more quickly than for a similar expense at a single-family home.
Included amenities. Many apartment buildings have security, a clubhouse, laundry facilities, and allocated parking. Higher-end complexes might offer a swimming pool, gym, and even a golf course. You can charge more for such amenities.
Limited risk. If a storm comes through and damages the property, you replace one roof for many units. On the other hand, if you own several single-family properties in an area that suffers damage, you may end up replacing a roof at each one. Similarly, one bad tenant in an apartment building does not present the same risk as a bad single-family tenant. You’ll still have cash flow from other units while you resolve the situation.
Larger time commitment. Even with sound, reliable processes in place, it simply takes more time to manage more units – and more tenant relationships. Tenants in apartment buildings typically turn over more frequently, which means a consistently higher administrative burden. You will spend more time screening new tenants, evaluating rental rates, and managing repairs and general upkeep after a tenant moves out.
More capital resources. You’ll need to spend more on repairs and replacements to maintain an apartment building in most situations. Repairs on several different units can cost more than fixing up one single-family home. Commercial HVAC and plumbing systems that serve an entire building are also more expensive to maintain.
Condominium/ Townhouse property management
While an apartment building is owned by one business or owner, a condominium or townhome complex involves separate ownership of each unit. Most such complexes have a homeownership association (HOA) or property management company to handle the building’s general maintenance.
Longer-term tenants. Because most condos and townhomes are purchased, you deal with property owners as “tenants”, people who often plan to live in the building for 5-10 years or more. You may not have to negotiate a new purchase with owners very often.
Shared amenities. Like an apartment building, condominiums and townhomes share common areas and amenities like elevators, a security system, a gym, and a swimming pool, as well as sports courts and a clubhouse. Maintenance for the property is the same, whether there is one condo or many.
Shared management processes. Again, like managing an apartment building, you can leverage your systems and processes for tenant screening, rent collection, and setting rents across multiple units for administrative efficiency.
Higher maintenance burden. If the complex has an HOA that charges substantial dues, the association and owners expect the property to be kept in excellent condition. They may be more demanding than apartment tenants. Unlike with an apartment building, you can’t just raise the rent to cover additional expenses.
Larger time commitment. Like an apartment building, managing a condominium or townhouse takes more time than a single-family home. You are dealing with more units, possibly more repairs, and more people.
Owners, not tenants. You deal with owners, who likely have a different mindset about the property than tenants; As a property manager contracted with a condominium or townhome complex, you will be bound by HOA requirements for communicating with owners and responding to their concerns.
If the condo or townhouse is being rented, property managers can follow regular eviction processes. But if they own the condo or townhome, the property management company would have to wait for a bank foreclosure on the owner, and that process takes time.
Property management can be a rewarding business when you decide on the right mix of property you should manage. A mixed portfolio diversifies your risk but can involve a lot of work, especially if you do it independently without other paid staff.
Your long-term success in property management relies on developing your knowledge about both real estate and business management. When you stay up to date on changing landlord laws, obligations, and community agreements, you will protect yourself and earn good favor with owners and tenants.
This article was written by the Rentometer Content Team. The Rentometer Blog features fresh takes and insights on rental housing topics, services, and technology. If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.