Which STR Performs Better: Apartments, Condos, or Houses?
Types of Vacation Rental Properties and STR Performance
Investing in a vacation rental is a huge decision to make. Even once you’ve decided to do so, there are still a myriad of considerations that need to be sorted through. For instance, deciding between an apartment, a condo, or a single-family home can make or break your future vacation rental business. That’s why you should have all the facts before you come to a conclusion on how to move forward and maximize your earning potential.
Today, we’ll be going over the pros and cons of investing in each property type (apartments, condos, and houses) before jumping into some STR statistics from KeyData to help inform your investment decision.
Pros and Cons of Apartment and Condo Vacation Rentals
An apartment or condo is typically defined as a small residential unit, typically in a building with similar units surrounding that all share common areas, such as the laundry room, pool area, or recreation room. Apartments and condos are more often found in large cities and urban areas than in small towns or rural areas. Here are a few pros and cons of investing in an apartment or condo for a vacation rental:
Pro: Apartments and condos are the least expensive property type.
Compared to single-family homes, apartments and condos are by far the least expensive types of property to invest in.
Con: Because apartments and condos are less expensive, they don’t rent for high rates.
Unless you are looking at investing in a luxury apartment or condo building with unique amenities and an incredible location, renting out a small 1-2 bedroom vacation rental will usually mean lower average daily rates than running one in a larger, more desirable property.
Pro: Apartment buildings and condo associations can give you access to great amenities and benefits.
Although apartments and condos are typically less expensive than single-family homes, some of them do offer some great benefits you’ll only find in exclusive, high-end luxury neighborhoods. Amenities such as a pool, hot tub, tennis courts, and other facilities can be useful for drawing in prospective guests.
Con: Some apartment buildings and condo associations are fraught with red tape.
Unfortunately, when you invest in an apartment or a condo, you’re also investing with the management of that property, which can mean tons of red tape from HOAs and other building associations when you want to make changes or renovations.
Advantages and Disadvantages of Single-Family Homes as Vacation Rentals
A single-family home, or a house, is a freestanding structure, usually in a neighborhood filled with similar buildings. It will typically have its own yard and can include outdoor amenities such as a pool, hot tub, or outdoor gathering area.
Here are a few of the advantages and disadvantages of investing in a freestanding home for a vacation rental:
Advantage: You will have the freedom to make the property your own.
It’s no secret that vacation rental guests love a unique property, and when you own a house outright, you won’t have to worry about dealing with pesky associations or apartment rules.
Disadvantage: You may have to pay more for maintenance and upkeep.
Because a house is usually owned outright, there’s no one to help with maintenance and upkeep other than your property management team, so you may end up paying more for these services than you would’ve with an apartment or a condo, where upkeep is built into HOA and condo fees.
Advantage: Homes typically command higher rates than condos or apartments.
Although homes might be a larger investment than condos and apartments, they’ll typically average higher daily rates than their smaller counterparts.
Disadvantage: A house can be expensive to invest in and may break your budget if costly repairs are needed.
Depending upon the level of resources you have available to you, a house might be too expensive to invest in, and even if you do, you could find yourself underwater if costly repairs become necessary.
Which Performs Better on the STR Market: Condos, Apartments, or Houses?
KeyData recently released a report that helps to clear up how performance varies across property types, and the results were quite surprising. They compared the years 2019, 2021, and 2023 to identify which property type could best withstand economic upheaval and which benefited the most from economic booms.
Houses, of the three property types, seem to be most likely to decline in times of economic uncertainty. During 2021, when the STR market saw a huge increase in revenue, they 35% increase in bookings over 2019. However, in 2023, houses saw the deepest decline in reservations, with a 16% decrease over 2021.
Condos and apartments, however, fare a bit better during times of economic hardship. Apartments were the property type with the highest number of reservations per year for each of the years examined, and while they saw a decline in 2021 and 2023, they saw smaller declines than houses and townhomes did.
Find Out More STR Tips and Tricks from the LocalVR Blog
Apartments, condos, townhomes, and houses–all of these property types come with advantages and disadvantages when it comes to investing in one as a potential vacation rental. But for those with lower budgets who don’t want to deal with maintenance costs, apartments and condos seem to be heads above the rest. Houses can also be a solid investment, especially if they are the right price in the right location.
Want to learn more about becoming an expert short-term rental owner? Check out some of our other blogs, such as our exploration whether you should allow longer stays at your vacation rental or our tips for crafting an incredible listing title.