Apartment investing gives investors the opportunity to build long term wealth, while experiencing monthly cash flow and increasing appreciation. With apartments and multifamily housing it is easy to amplify your efforts while decreasing your risk.
It depends on your investment goals. Get more income faster with multifamily.
More rental units produce a higher amount of cash flow faster than a single-family residential (SFR) property. And they are convenient. Instead of juggling properties all over the city, every unit is in one location and under one roof.
By spreading the cost of expenses, property taxes, insurance, and holding costs across all units create an economy of scale effect. Vacancies are not as detrimental when all the other units are covering the costs, unlike an SFR investment that
does not have any other income to cover the expenses.
The biggest drawback is low liquidity.
It takes time to sell an apartment building.
And the lack of diversification.
Recurring rental income with generous tax benefits that help you keep the rental income.
The appreciation can increase by creating value with repairs and repositioning. Add amenities, update the exterior of the building, and the interiors with premium appliances, counters, and flooring, then increase rental prices.
Improve the management. Add a new tenant mixture and fill the vacancies. Collect past due rents and increase service fees.
Create supplementary income with laundry and vending machines or storage and parking space rentals. Community, clubhouse, and pool areas can be rented for special events.
Shifting the utility cost of electric, gas, and water to the tenants saves on operating expenses and increases revenue.
The 2% Rule provides an indication of the possibilities for cash flow. 2% of the purchase price needs to equal the monthly rent amount. However, the 2% rule does not consider the property's location, condition, demand, or depreciation and appreciation.
Some investors ballpark it, estimating after all of the expenses and the mortgage each unit should make a profit of $100-150 at the very LEAST.
Estimating is sufficient for a glance, but it is vital to do due diligence. Collect accurate data and combine it with other valuation strategies to make an informed investment decision.
Class A: Luxury rental housing. High end / High rise. The investor gets slow, steady appreciation with low cash flow and low risk.
Class B: Apartments for working people who choose to rent instead of buy.
These apartment houses cater to the young lower to mid-level professionals.
The investor gets rapid appreciation with stable cash flow. Plus low maintenance costs.
Class C: Apartments for working people who can not afford to buy a house.
Perfect for blue-collar and management-level employees. The investor gets moderate appreciation and steady cash flow.
Class D: Properties for low-income families usually subsidized section 8 housing.
These properties are more likely to create the most cash flow but with the most managerial problems and repairs. Best solution- use a property management company to eliminate the headaches.
You're looking for underperforming properties with low cash flow and high vacancy rates. The ugly one that needs repairs is your ideal investment property. These properties offer an opportunity to increase cash flow, stabilize the capitalization rate and turn the asset around.
Burned-out, disgruntled landlords evicting their tenants are the best sources for finding apartment buildings. They're motivated and often provide owner financing, primarily if they have owned the property for ten years or more. And in some cases, if they believe you'll turn the apartments around and create a positive cash flow, they'll wait to be paid and take an equity split.
if you are going to be a do it yourself landlord, then you'll need cloud-based software or online services to screen the tenants, take rental payments, and coordinate service and repairs.
Use a leasing agent or a Realtor to manage
the apartments. They will handle all the property's legal aspects in a
professional and timely manner. Freeing up your time and eliminating
headaches. Although the fee is usually 10% of the monthly rent and an additional fee for onboarding new tenants, many investors find that the expense of a designated professional property management company is worth it.
Multifamily apartment buildings are more expensive than SFR and require higher startup costs and down payments. Financing focuses less on the investor and more on the investment. Funding is based on the cash flow and potential decrease in vacancies and condition of the property. Conventional financing for 30 years with 20% down and moderate interest rates are normal terms.
Syndications and partnerships are creative financing methods that work well for apartment buildings. Working together using other people's money (OPM) it allows for the purchase of better and more significant investments, maximizing profits and decreasing risk.
An apartment investing advantage. Every 4-5 years, you'll want to refinance, take the equity out of the property, and put it into your pocket with no taxes and no capital gains. As Warren Buffett famously said, "Our favorite holding period is forever."