Investing In An Apartment Complex
Investing in an apartment complex is one of the most effective ways to build wealth with real estate. But, if you are thinking of investing in an apartment complex, below are some important things that you need to understand.
Learn why real estate investing is the best way to build your net worth.
The 5 Great Benefits of Rental Property Investing
Before we dive in to apartment complexes, let’s consider the benefits of ALL forms of rental property investing. That’s:
- single family rentals
- multi-plexes / apartment complexes
- condos
- vacation homes
- etc.
1. Passive Income
Investment properties are an excellent source of passive income, which is recurring cash flow that requires relatively little effort to maintain. The income you receive from rentals can be used to pay the home loan and any excess funds can be used for other expenses or further investing.
Rent tends to increase over time while your mortgage stays the same, meaning your cash flow will improve as time goes on. Rental income is often taxed differently than employment income so there may also be tax advantages to owning an investment property. No matter how small or large your investment property, any form of passive income source is better than none.
2. Financial Security
Owning investment property gives you financial security as you prepare for your future. Investing in property leads you on the way to financial freedom and success. In addition to the immediate cash flow, there is also potential capital growth. Your property will likely gain value over time and you can choose the perfect time to sell so that you make the most profits.
3. Option to Move In Yourself
Owning a rental house gives you the peace of mind of knowing that you have somewhere to live if you ever run into financial or other unexpected issues. Many people purchase a property with the intention of eventually retiring to that location. In the meantime, they are building equity and having someone else (tenants) help pay off that home. Keep this in mind when considering the leasing terms of your rental property.
Planning to move into the property yourself? See the pros and cons of owner-occupied properties!
4. Investment Diversification
Banks and financial planners see property as a more stable investment than stocks and paper assets. Property is less prone to big market fluctuations and provides cash flow even in down markets. Adding real estate to your investment portfolio provides diversification and an added layer of protection against risks. Investment property is among the best long-term investments for individuals and businesses.
5. Real Estate Leverage
As you pay down the loan on your investment property, your cash flow will strengthen and your equity will build. When your property goes up in value, your equity also increases, giving you the ability to take advantage of real estate leverage. You can draw on the equity to put down payments on other investment properties. Use your first investment property to help buy your second one and so on.
So, how do you decide whether single-family or multi-family rental property is the best investment for you? Read our guide to find out!
Investing in an Apartment Complex
Now, what about multi-plexes and apartment complexes?
When you decide to invest in an apartment complex, there are several routes you can take. How you choose to pursue the project will depend on how much capital you have, how involved you would like to be, and the amount of time you would like to commit. Some of your options include:
- Buying the apartment complex on your own if you have enough cash for the required upfront capital.
- Buying it with partners
- Joining a real estate fund
- Investing in a syndication
- Buying shares in a real estate investment trust (REIT)
- Raising money and creating your syndication
If you are not sure which is these options is best suited for you, you can consult a real estate professional on the best way forward.
As we said above, this is one of the best kinds of real estate investment. Some of the benefits that are associated with investing in a multi-family apartment property include stable cash flow and incredible tax benefits. However, this kind of investment comes with challenges such as unexpected vacancies and expensive repairs.
So, let’s consider the pros and the cons of investing in an apartment complex:
Pros of Investing in an Apartment Complex
As mentioned above, there are many benefits that come with investing in a multi-family apartment complex. Some of the benefits include:
Cash Flow
Investing in an apartment complex provides a dependable stream of income that produced positive cash flow, which is significantly higher compared to the regular stock yield dividends. Unlike income from stocks which is uncertain and volatile, an apartment complex will be a solid source of regular and stable cash flow. In addition to rent payments, your apartment complex can help you generate income from vending machines, laundry machines, and parking spots.
Leverage
Unlike other forms of investments, investing in real estate is leveraged in a huge way. For instance, when investing in an apartment complex, you will only be required to raise about 20 percent of the overall cost of the apartment. The remaining part can be financed through a mortgage payable in up to 20 years or more. Other investment options, such as stocks, do not come with such an advantage.
The Asset Value Appreciates
Multi-family rental apartments appreciate more in value compared to other regular forms of investment. The value of an apartment complex increases with rent increases and efficient maintenance and management of the asset.
Cons of Investing in an Apartment Complex
Like with any other form of investment, investing in an apartment complex has its fair share of disadvantages. Some common cons of investing in a multi-family apartment include:
Unpredictable Market Forces
Although you will do your research to ensure that you invest in a promising neighborhood, there is no way to foretell what will actually happen in the future. For instance, the area that you think is gentrified could start experiencing high rates of crime and poverty, causing your investment to decline in value.
Liability
While you may have the necessary insurance cover, you as the property owner could be held liable for issues such as accidents and theft on your multi-family apartment complex.
Low Liquidity
Unlike bonds and stocks that can easily be sold when an investor needs cash, selling an apartment complex is not easy, and it might take a long time. Even if you found someone to buy it quickly, it will most likely be at a price that is lower than what the apartment complex is worth.
The Bottom Line…
Buying an apartment complex can be the best way to build your net worth and reach your financial goals.
If you are ambitious about the growth of your real estate portfolio, AQRE Home offers all the resources you need to get started. You can literally have as many properties as you want, and use property management companies to turn them into a truly passive income!
See the Multi-Family Properties for sale on AQRE Home!
If you are interested in learning more about real estate investing, read more on the AQRE Home Blog for real estate investors.
And to learn how you can make the most use of mortgage financing to purchase properties, feel free to reach out to our partners at AQRE Lending. They can share insights and expertise, and advise on the best mortgage products for your goals.