If you are considering diving into real estate investments, why not consider investing in apartments? Owning apartment buildings can streamline your path to producing an income through real estate.
Ready to learn more about investing in apartments? Let’s take a closer look at what you need to know.
Why should you consider investing in apartments?
There is no shortage of options when choosing a real estate investment strategy. But owning apartments provides several key benefits that might sway you to this investment choice.
Here’s why investing in apartments might be the right fit for you.
Stable cash flow
First and foremost, owning apartment buildings provide a promise of more stable cash flow. Cash flow is an important number to consider because it indicates your net rental income after considering your expenses, such as the mortgage or maintenance.
When investing in apartments, there will likely be several units on any given property. With that, you are less likely to see a big cash flow dip when any individual tenant moves out. Instead, you’ll have time to fill the unit while the other tenants continue to pay rent.
Plus, many apartment buildings require a 12-month lease. So, there will be a reliable source of income for many months at a time.
Scalable income
If you want to build a large income from rental real estate, owning apartment buildings are a great way to scale your income. Although it might be obvious, the significant number of units in a building can allow your income to grow quickly.
Additionally, finding a manager for an entire building might be easier for investors looking to outsource property management than for individual homes.
Tax deductions
When investing in apartment complexes, you can potentially save big with the help of tax deductions. As the owner of an apartment building, a competent CPA can help you decrease your taxable income. These deductions can create more profit for you as an investor.
Possible appreciation
Another benefit of owning apartments is the possibility of appreciation. Appreciation is when the value of a property increases over time.
When you are investing in apartment buildings, you have the opportunity to pursue forced appreciation. You can do this by increasing the number of amenities you offer in order to increase rent for your tenants. The more rent your building can bring in, the more valuable the building will be.
What’s the benefit of investing in apartments over single-family homes or units?
When specifically compared to single-family homes, the reasons for investing in apartment complexes are plentiful. The biggest benefits include an income that is easier to scale and a more stable cash flow.
The flip side is that it will typically cost more to get started investing in apartments. But it could be worth the increased costs for the long-term rewards. Owning apartments can definitely be a lucrative investment.
How to start investing in apartments
If you decide that owning apartments is the right move for your finances, here’s how to get started investing in apartment complexes.
1. Conduct research
Of course, the first step is to conduct considerable research before looking for any properties. Start by looking at the market features, the amount of income you’d like to make, and the amount of capital you are willing to invest.
You might find that the price is just too high to start your real estate journey here. But that’s okay! You can potentially invest in apartments through REITs, syndication deals, or work with partners to make your dream a reality.
Don’t be afraid to spend a considerable amount of time researching your options. Moving forward with the purchase of an apartment building is a big deal. Don’t jump into investing in apartment complexes until you are ready.
2. Look for the right property
Once you feel comfortable with the market factors and your financial commitments, it is time to start searching for the right property. You’ll likely want to look for properties that at least meet the 1% rule.
That means that the apartment complex brings in 1% of the purchase price in gross monthly rent. For example, let’s say that you find an apartment complex for sale at $500,000. The building would need to generate at least $5,000 in gross monthly rent to pass the 1% rule.
But keep in mind that the 1% rule is just a rule of thumb. You’ll want to conduct further due diligence on any property before making any offers. Consider any expenses associated with the property when projecting your monthly cash flow.
You can start your search on sites like Zillow or Redfin. But if you are struggling to find a good deal, then consider enlisting the help of a real estate agent that specializes in apartment complexes.
The right real estate agent should be able to help you find the right apartment complex for your needs so you can get started investing in apartments!
3. Secure financing
Most of us cannot afford to purchase an entire apartment building in cash. With that, it is time to secure financing after finding the right building.
Start your funding search by talking to lenders in town that work with real estate investors. If you aren’t sure which lenders provide investor financing, consider joining a local real estate group to find contacts. You might be surprised by the number of connections you can make in these groups.
Before you commit to financing an apartment building, make sure that your personal finances are in order. You should prepare yourself with a robust emergency fund to cover unexpected expenses along the way.
Need help building an emergency fund? Check out our full guide.
4. Build the right team
After closing on the property, you’ll need to start managing it yourself or hire a property manager. A property manager can take the burden off of your shoulders. But you’ll have to pay a substantial fee to the manager each month.
If you decide to self-manage, it is a good idea to build out a roster of reliable contacts to help along the way. A few of the key resources to find include a handyman you can rely on, dependable contractors, and fastidious maintenance personnel.
The size of your team will vary based on your building’s size. But never underestimate the power of having reliable people to call when something inevitably breaks at your building. You want to ensure you have the right resources when you dive into owning apartment buildings.
Is investing in apartment buildings right for you?
Investing in apartment buildings is not the right fit for everyone. But it could be the right fit for your finances. The only way to decide for yourself is to weigh the pros and cons of investing in apartments. Some of the benefits include relatively stable cash flow and a scalable business model.
But there are drawbacks to consider as well. A few negatives include the major financial commitment and possible headaches if you decide to self-manage. If you are ready to start building this revenue stream, then take action today!