Rental Yield Comparison: Apartments vs Houses vs Commercial
When investors debate property types, the conversation usually revolves around appreciation potential or management hassle. But the real differentiator—the metric that separates hobbyists from professionals—is net rental yield. Not all properties produce income the same way. A single-family house, a 12-unit apartment building, and a NNN-leased retail store might all cost $500,000, but their yield profiles, risk structures, and scalability are worlds apart. Let's break down how each asset class actually performs when the dust settles and the cash hits your account.
Single-Family Houses: The Starter's Sandbox
Houses are where most investors cut their teeth. They're simple to finance, easy to understand, and liquid enough to sell without a 6-month marketing slog. But from a yield perspective, they're the lowest performer of the three.
Typical Net Yield: 3–6%
A $300,000 house renting for $2,000/month shows a glossy 8% gross yield. After expenses, you're lucky to clear 5%. Here's why:
- Expense ratio: 35–45% of gross rent goes to property taxes, insurance, maintenance, and vacancy. Single-family tenants treat it like their home—which means they're less tolerant of rent increases and more demanding about repairs.
- Vacancy risk: One month empty = 8.3% annual revenue loss. No other units to offset it.
- Management intensity: High. You're the maintenance department, rent collector, and landscaper.
Pros:
- ✅ Financing: 30-year fixed mortgages at 6–7% are standard. Low barriers to entry.
- ✅ Appreciation: Houses in good neighborhoods often outperform multifamily and commercial.
- ✅ Tenant quality: Families stay 2–4 years, reducing turnover costs.
Cons:
- ⚠️ Yield ceiling: You can only collect one rent check. No economies of scale.
- ⚠️ Expense creep: One roof, one HVAC—100% your problem.
- ⚠️ Scalability: Managing 10 houses means 10 separate insurance policies, 10 tax bills, 10 lawn care vendors. It's a part-time job.
Best For:
New investors building equity through a house-hack or first rental. Also for those prioritizing appreciation over cash flow—think growth markets like Austin or Nashville where the land value drives returns more than rent.
Apartments (Multifamily): The Yield Workhorse
Apartment buildings (2–50 units) are where rental yield gets serious. Spreading fixed costs across multiple units creates economies of scale that single-family can't touch. This is the asset class that built most mid-tier real estate millionaires.
Typical Net Yield: 6–9%
A $1.2M 10-unit building with each unit renting for $1,200/month generates $144,000 gross income. With a 40% expense ratio (lower per unit than houses), you net $86,400—7.2% net yield.
Pros:
- ✅ Expense efficiency: One roof, one property tax bill, one insurance policy. Per-unit costs drop 20–30% vs. houses.
- ✅ Vacancy smoothing: One vacant unit out of 10 is a 10% revenue dip, not 100%. You still cash-flow.
- ✅ Forced appreciation: Raise rents $50/unit across 10 units = $500/month = $6,000/year = $85,000+ in property value (at a 7% cap rate).
- ✅ Professional management: At 10+ units, hiring a manager makes economic sense (8–10% of rent), freeing your time.
Cons:
- ⚠️ Financing hurdles: Commercial loans (20–25-year amortization, 5–7-year balloons) are standard. Rates are higher, and banks scrutinize rent rolls and your experience.
- ⚠️ Tenant turnover: Apartments turn every 12–24 months. Turnover costs $1,500–$2,500 per unit.
- ⚠️ Regulatory risk: Rent control, eviction moratoriums, and habitability lawsuits hit multifamily hardest.
Expense Breakdown (Rule of Thumb):
- • Property Management: 8–10%
- • Property Tax: 1–1.5% of value
- • Insurance: $400–$600/unit
- • Maintenance/CapEx: 12–15% of gross
- • Vacancy: 5–8%
Best For:
Yield-focused investors who want scalable cash flow. If your goal is $10,000/month in passive income, you need 50 houses (nightmare) or one 40-unit building (manageable). Apartments are the bridge from active landlord to portfolio owner.
Commercial (NNN) Properties: The Hands-Off Cash Machine
Commercial real estate—especially triple-net (NNN) leased properties like dollar stores, fast food, or medical offices—flips the script. You're not a landlord; you're a passive owner of a cash-flowing bond. The tenant handles everything: taxes, insurance, maintenance, even the landscaping.
Typical Net Yield: 4.5–7%
A $1M NNN-leased CVS paying $55,000/year rent delivers a 5.5% cap rate (net yield). But here's the kicker: that $55,000 is net to you. No expenses. No 2 AM plumbing calls. It's pure, passive income.
Pros:
- ✅ True passivity: The tenant operates the building. Your involvement is collecting rent and depositing it.
- ✅ Long-term leases: 10–15 years with rent escalations (1.5–2% annually) are standard. Predictability is unmatched.
- ✅ Corporate guarantees: Your tenant is CVS, Starbucks, or Walgreens—not a tenant whose job might vanish.
- ✅ Yield stability: Commercial values are driven by lease terms and credit quality more than market hysteria. In recessions, NNN yields compress less than residential rents fall.
Cons:
- ⚠️ Lower liquidity: Selling a $2M dental office takes 6–12 months, not 30 days like a house.
- ⚠️ High barrier to entry: $1M minimum for decent NNN properties. Financing requires 30–35% down and strict DSCR ratios.
- ⚠️ Tenant concentration risk: One tenant = one point of failure. If they leave, you're 100% vacant and footing all bills.
- ⚠️ Appreciation limits: NNN properties trade on yield. Unless you buy below-market or negotiate strong rent bumps, appreciation is modest (2–3% annually).
The Hidden Cost:
- • Lease rollover risk: When the 15-year lease ends, re-leasing can take 12–18 months and cost $50,000+ in tenant improvements (TI) and brokerage fees. Budget 6 months of rent as a reserve for rollover.
- • CapEx surprises: While the tenant pays for operational maintenance, you're still on the hook for the roof structure, parking lot, and major systems at lease end.
Best For:
High-net-worth investors seeking mailbox money and portfolio diversification. If you've built equity in residential and want to de-leverage and simplify, NNN is the exit strategy.
Head-to-Head Comparison Table
| Metric | Single-Family House | Apartments (10-Unit) | NNN Commercial |
|---|---|---|---|
| Typical Net Yield | 3–6% | 6–9% | 4.5–7% |
| Expense Ratio | 35–45% | 35–40% | 0% (tenant pays) |
| Management Intensity | High | Medium (w/pro manager) | None |
| Vacancy Risk | Catastrophic (100% loss) | Moderate (10% loss) | Catastrophic but rare |
| Financing | 30-year fixed, 20% down | Commercial, 25yr am, 20–25% down | Commercial, 30–35% down |
| Scalability | Poor (10 = 10x work) | Excellent (systems scale) | Excellent (passive) |
| Appreciation | High (land value) | Moderate (rent-driven) | Low (yield-driven) |
| Time to Fill Vacancy | 30–60 days | 15–30 days | 6–18 months |
| Ideal Investor | Beginner / Appreciation-focused | Yield-focused / Portfolio builder | Wealth preservation / Passive income |
The Hybrid Play: Which Combo Works?
Smart investors don't pick one—they strategically allocate:
Early Stage (Age 25–40)
Buy 2–3 houses with low down payments. Focus on appreciation and learning. Use FHA or house-hacking to minimize capital.
Growth Stage (Age 35–50)
1031 exchange houses into a 15–30 unit apartment building. Maximize cash flow and force appreciation through operational improvements.
Wealth Stage (Age 50+)
Sell the apartments, buy 2–3 NNN properties. De-leverage, lock in passive income, and enjoy the mailbox money.
Example:
Tanya starts with a $300K house (5% yield, $15K cash flow). After 10 years, she trades into a $1.5M 12-unit building (8% yield, $72K cash flow). At 55, she sells for $2.2M, buys a $2M NNN Walgreens at 6% cap, and collects $120,000/year with zero tenant calls.
The yield progression: 5% → 8% → 6% (but passive and stable).
Market Trends That Are Reshaping Yields (2024)
- Rising Rates Hurt Houses Most: As 30-year mortgages hit 7%, house affordability crashes, pressuring rents. Apartment buildings with assumable commercial loans (5% rates) look like gold.
- Commercial Cap Rate Compression: Institutional money is flooding NNN, pushing yields from 6.5% to 5.5%. The window is narrowing for retail investors.
- Short-Term Rental Arbitrage: In tourist markets, converting long-term houses to Airbnb can boost gross yield from 5% to 15%—but management intensity skyrockets.
- Build-to-Rent Communities: Developers are building entire neighborhoods of single-family homes for rent, competing directly with small landlords and compressing yields in hot markets.
Which Should You Choose?
- Need cash flow NOW, hate management? NNN Commercial. Accept lower yield for freedom.
- Want scalable, high yield and can handle some work? Apartments. This is the workhorse.
- Starting out with $50K and want to learn? Single-family. It's your apprenticeship.
The answer isn't about which is "best." It's about which yield you can actually capture. A 9% apartment yield is meaningless if you can't manage it. A 5% NNN yield beats a 7% house yield if you value your sanity.
Action Step:
Define your net yield target (e.g., 7%) and management tolerance (e.g., 5 hours/month). Then work backward. If you have $100K and 5 hours, apartments with a manager fit. If you have $500K and 0 hours, NNN is your answer. The right property is the one whose yield you can harvest without burning out.
Use our rental yield calculator to compare different property types and find your optimal investment strategy.