Investing In Apartment Complex's Winston Rowe and Associates
Buying an apartment complex is more involved than investing in single-family properties and involves a deeper understanding of the financial and management aspects.
By: Winston Rowe and Associates
Decide if Buying an Apartment Complex Is Right for You
Before you start investing in apartment buildings, you want to make sure it's the right investment strategy for you. Compared to purchasing single-family homes and small multifamily properties, an apartment building requires more research, more time, and oftentimes more capital and additional expenses. It's important to weigh the pros and cons before buying apartment complexes.
Recurring Income from Buying an Apartment Complex
One of the main reasons for buying apartment buildings is ongoing income. If the deal is right, and the finances are sound, a good apartment building will throw off recurring monthly income, also known as positive cash flow.
Diversifying Income Across Many Units Once Buying an Apartment Complex
If you're a buy-and-hold investor who typically buys single-family properties, you're probably familiar with a common vacancy problem. If your property goes vacant, you lose 100 percent of your rent.
Lower Per-Unit Maintenance Costs of an Apartment Complex
Economies of scale work in the favor of the apartment building owner. For example, if you have to redo a roof, it's not just for one unit. That repair serves all the units in the building. If you need to repaint, you can use the same paint for multiple units and not have wasted materials resulting from only one unit's need.
Extra Sources of Income When Buying Apartment Complexes
The larger the building, the more likely you can add additional sources of income, such as vending machines, ATMs and coin-operated laundry facilities. Renting parking spaces and space for billboard advertising can also provide additional income. One pro tip is to charge additional monthly rent for air conditioning units, upgraded appliances, and upgraded kitchens and bathrooms.
Building's Apartment Value Is Often a Function of Rents
When buying apartment buildings, the value of the investment is determined in great part by the financial performance of the building. So, if you can increase the rents, you can increase the value of your holding.
Cons of Buying Apartment Complexes
Buying an apartment complex is more complex than acquiring a single-family home or even a small multi-unit property. The management will be a bit more intensive and the nature of tenants will be different. In addition, expect maintenance to be more of a regular issue and property management to be more expensive.
Buying an Apartment Complex Requires Intensive Management
Once buildings are larger than four units, management becomes a much more intensive process. The ability to manage the property yourself becomes an issue, and you need to consider some form of outside management.
One option is hiring a professional property management company. In other cases, you'll hire an onsite manager. Both of these come with additional costs and the need to supervise the manager. Typically, property managers charge 10 percent to 20 percent of gross monthly rents.
Tenant Turnover Is Prevalent When Buying an Apartment Complex
When tenants move into a single-family dwelling, it tends to be more for the long-haul. They get to know the neighborhood, their kids go to local schools, etc. Tenants in apartments, on the other hand, are much more transient.
Less Tenant Care of an Apartment Complex
Even a renter in a single-family dwelling will tend to treat the property like their own home. An apartment, on the other hand, is a different animal. Tenants often don't tend to treat apartments with the same care. So, damage and maintenance needs beyond the normal wear and tear will be much more prevalent with apartments.
Buying an Apartment Complex Involves High Maintenance Costs
When buying apartment buildings, be prepared for turnover and general lack of care tenants give to their units. You'll also have more ongoing maintenance with apartments than with single-family units. On a per-unit basis, maintenance costs will be lower the more units a building has particularly when compared to a single-family dwelling.
This article was published by Winston Rowe and Associates https://www.winstonrowe.com