Why You Should Consider Apartment Buildings as Part of Your Portfolio
Real estate investing takes many forms and which one you choose to focus on will depend upon your individual financial goals. For example, you may want to invest in and hold commercial complexes because you are looking for a steady stream of monthly income. Or, maybe you want to focus on buying a fixer-upper or a foreclosure home with the intent of flipping the home quickly and making a profit for reinvestment into another property. Both would be great real estate investment vehicles.
Yet another real estate investment strategy that many seasoned investors’ favor is buying apartments and multi-unit complexes. Your first reaction may be that it’s not for you, but it may warrant a second look, and here’s why. First and foremost, you have the potential of generating a monthly income stream that, if planned correctly, can not only cover the cost of the property’s mortgage and any maintenance and repairs, but also provide additional money that can be used to buy other properties to add to your real estate investment portfolio.
Regardless if your financial goal is to generate a steady monthly income or take profits to reinvest in other properties, buying apartments or multi-unit complexes can assist you in meeting that goal. In fact, you can do the same thing with apartments or a multi-unit complex that you can do with a single-family property. As is the case with buying and flipping foreclosure homes, apartments and multi-unit apartment complexes can just as easily be wholesaled, retailed, rehabbed or rented.
Apartments or multi-unit complexes actually have a few advantages over single-family homes that investors find attractive such as:
Cash flow potential
Investors have more potential to generate a positive cash flow with more units than they do with a single family home. For instance, you have a 3-unit apartment and a single family home you are renting. What happens if the tenant moves out of the single family home and you can not find another one immediately? You guessed it; you’ll be making the mortgage payments and depleting your cash reserves. Now, what if you lost only one tenant in your 3-unit, but had the other two? Chances are a larger percentage –if not all- of the mortgage is still being covered.
More economical
What do you think would cost you less money - replacing the roof on an apartment home that has 3-units or replacing the roof on three single family homes? Plus, chances are the rents from that 3-unit are likely to cover a large chunk of the expense to repair the roof. That may not necessarily be the case in the single-family home scenario.
Bigger Pay Day
When it comes to real estate value, apartments and complexes have historically increased in value more than single-family homes. This is largely due to the fact that apartment complexes cost more than single-family homes, but the advantage is that they appreciate more in value as well. For example, let us say you buy a single family home for $150,000 and it appreciates 10 percent in value over time. That means it will be worth $165,000. Now, if you purchased a 3-unit apartment home worth $350,000 in the same market and it also appreciated 10 percent, it would be worth $385,000. That translates into $20,000 more in your bank account when you sell.
Less competition
Most real estate investing gurus’ who sell their seminars and products to new “want-to-be” investors tend to focus on the advantages of buying and selling single-family properties. Therefore, the competition and focus for homes is often pretty aggressive because no one is really talking about the benefits of buying apartments and multi-unit complexes.
At this point, you may be thinking the idea has merit, but you really don’t want to struggle with all the issues of being a landlord. No problem, with the extra income being generated from these properties, hire a good management company to handle any tenant issues for you while you deposit the rent checks. Sure, you can make money buying and flipping or buying and renting single-family homes, but the bottom line is you will potentially make more doing the same thing with multi-unit properties.