Purchasing multi-family or apartment properties has become an increasingly popular choice for investors who are looking to grow their portfolios. These properties provide for an additional stream of regular income and steady appreciation, and while this investment is more complex than buying single-family rental homes, it can offer some serious benefits.
Dependable Income
When the economy is uncertain and the stock market is unpredictable, traditional investing may not offer a dependable monthly revenue stream. On the other hand, it’s easy to forecast what kind of income will come in monthly from an apartment property. Additionally, it also has a much greater ROI over the lifetime of ownership. Regardless of how the stock market is performing, apartment property investment will be a safe bet.
Debt Reduction
Few investors have the cash on hand to avoid needing additional funding for the purchase of an apartment property, which means they will have to accrue some debt. Net operating income (gross income minus operating expenses) is used to reduce that debt, create equity, and provide the investor with even more leverage to use for more purchases down the line.
Tax Benefits
Mortgage deductions, depreciation accelerations, and 1031 exchanges (which allow for the like-exchange of properties with the deferral of gains) are all tax benefits that can be leveraged by real estate investors who purchase an apartment complex as a real estate investment. These are deductions that an average stock market investor wouldn’t be able to take.
Appreciation
Apartment and multi-family properties increase in value as the NOI increases, which usually happens when rent increases and property value is maintained. This isn’t a hands-off approach; repairs need to be made, amenities need to be provided, and the community needs to offer a reputation of being a desirable place to live. If you let your property fall into a state of disrepair, you can kiss that appreciation goodbye.
Lower Purchase Price Per Unit
Many people love to shop in bulk to save money, and the same strategy can be applied to purchasing a rental property. Unlike buying several single-family homes, apartment and multifamily properties allow investors to enjoy a lower average of operating costs over a higher number of rental units.
Lower Risk
When a single-family home rental is vacant, 100% of the revenue is lost. How would an investor cover the mortgage if that’s the case? When a single apartment in a complex of 10 is vacant, there’s only 10% of the revenue to account for — which can be easily covered by the rental profits from the other 9 units.
Streamlined Lending
Buying several single-family homes means that an investor is originating several mortgages, often spread out over one city or even throughout several locations. With so many loans, a portfolio can get messy. With apartment property investments, there’s only one loan for several income-producing units, making it much easier to track debt.
Flexible Investing
With the rise of alternative funding strategies, there are now several ways to invest in a multifamily property; you could foot the bill all on your own if that’s something you can swing but there are other options. Find a partner (or several), consider a real estate investment trust (REIT), or even invest via syndication, which is a fancy word for crowdfunding an investment purchase.
Optimized Property Management
Investors who buy only one or two single-family homes as real estate investments likely don’t have the income to hire property management professionals to make their income sources truly passive. Alternatively, investors who acquire large, multi-unit apartment buildings can easily swing hiring a team to maintain their investment without sacrificing profit.
Apartment properties offer a long list of benefits and these are just a few. For investors who want to add passive, low-risk sources of revenue to their profile will see higher ROI when they bring in a team of experienced, qualified property management professionals for peace of mind.
Ultimately, our mission is to invest, transform, and create long-lasting communities that are impactful, high-quality, and truly one-of-a-kind. Once we acquire a property, it is completely managed by our team and we make significant capital investments in it to enhance the quality of life of our tenants as well as the local community as a whole. If you are in the market to buy or sell apartment complexes, let’s talk more.