Real estate is an excellent addition to anyone’s investment portfolio. The real question, though, is what type of real estate should you put your money into? While there are thousands of investment properties on the market, many of them are in the range of the wealthy. Fortunately, there are affordable investments that are ideal for first-time investors. This includes cheap apartments.
If you’re planning on investing in property, let’s take a look at the pros and cons of closing the deal on a cheap apartment in South Florida, based on the professional opinion of our property managers:
What is a cheap apartment?
In real estate, an “apartment” is defined as a self-contained unit in a building. By self-contained, it means that the apartment has a separate bathroom, kitchen, etc. that enables its occupants to function independently. Essentially, apartments are part of a bigger building, which is also considered a multi-unit property.
There’s no exact price for a cheap apartment, as rental rates differ from state to state, county to county, and so on. In general, rent is considered “cheap” if it accounts for less than 30% of a household’s income.
Similarly, there’s no exact definition of a “cheap apartment”. However, if you Google “cheap apartments”, you’ll find residences that lack high-end amenities, have outdated furniture — you get the picture.
Why should you invest in a cheap apartment?
Cheap apartments may not be the most attractive, but many investors are putting their money into affordable housing. First, let’s list down the pros of investing in a cheap apartment:
#1 Cheap apartments are affordable
Don’t have the capital? A cheap apartment is easier to afford than, say, a condominium. If you’re a first-time investor and your capital is limited, you may want to look into cheap apartments for sale. If the price is reasonable, you can purchase it with cash — this means you won’t have to go through the trouble of applying for a mortgage. If you do need to take out a mortgage, the rates will be much lower.
#2 Cheap apartments can charge higher rent
If you’re lucky enough to find a cheap apartment in a good location, you can charge a higher rental price. Even if you have to repair the property, the return on investment (ROI) will still be significantly higher than high-end apartments for rent.
Not sure if a prospective property is in an attractive location? Read our article on “How to Pick the Ideal Location for Your Investment Property”.
#3 Cheap apartments aren’t as affected by the recession
The COVID-19 pandemic is a clear example of the severe effects of the recession on upscale properties. Renters across the country relocated to the suburbs, while those who stayed in the city chose cheaper housing. During an economic decline, cheap apartments can actually see a rise in demand. Hence, if you’re concerned about losing tenants during a recession (because it’s bound to happen again), a cheap apartment may be your best option.
Why shouldn’t you invest in a cheap apartment?
“Cheap” shouldn’t be the only reason why you want to invest in a certain property. Before you buy a cheap apartment, let’s consider some of the cons:
#1 Cheap apartments aren’t attractive
If your cheap apartment is in a poor location, no one is going to want to live there. The biggest issue with buying a cheap apartment is that there’s a high chance that it’s in an unattractive neighborhood. The property may be reasonably priced, but don’t forget other factors such as crime rates, infrastructure, amenities, and so on. You should consider enlisting the services of a property management company to help you conduct a rental market analysis.
#2 Cheap apartments need a lot of work
Wonder why it’s so cheap? It’s probably because it needs a lot of work. Cheap apartments are cheap because of their old age, outdated appliances, and so on. This means that you’ll likely have to renovate the entire place before you can rent it out. Depending on the amount of damage, this could mean seeing vacancies for months. However, if you chance upon the right property, the cash flow could offset the high costs of repairs.
That’s why you should work with a property management company that can determine if a property is profitable.
#3 Cheap apartments likely won’t sell
It’s important to consider the resale value of every piece of real estate that you invest in. Hence, if your cheap apartment is in an unappealing location, you may have a hard time selling it in the future. However, if its neighborhood improves over the years, you may be able to sell your property at a profit. Consider attending city council meetings to stay updated on the plans for the area.
Have a cheap apartment that you’re trying to sell? Speak to a property management firm to find out if it’s the right time to sell or if you should simply raise your rent.
Are apartments a good investment in general?
Multi-family properties are an excellent choice for property investors who are trying to expand their portfolios over a short period. Buying one apartment building is more convenient than buying several single-family homes. The latter involves dealing with different sellers, while the former consolidates all of the headaches that come with acquiring a property.
In addition, multi-family property investors can benefit more by working with a property management company. If a property investor has only one single-family home, it wouldn’t be financially wise to work with a third-party management company. Multi-family property investors, on the other hand, can maximize their investments without cutting into their margins with the help of a property manager.
The bottom line
Investing in real estate requires thorough research and in-depth investment analysis. As with any investment, it comes with risks, but you can mitigate those risks by enlisting the services of a property manager. As a full-service property management company, Luxury Property Care can help you find cheap apartments in your county or city.