Investing in apartments can provide investors with a reliable source of monthly income and gradual appreciation in the value of their investment portfolio.
An apartment complex, aka a multi-family building, is a building that contains multiple rentable units. These units can be apartments, condos, or houses. The advantage of investing in multi-family properties is that there are often fewer restrictions for building a portfolio of small homes.
Here are the eleven best benefits of apartment investments:
Reliable Income Stream
Rental property investing is a good way to earn a regular and dependable income. It usually produces positive cash flow, which is higher than the dividends from stocks. Unlike stock investment, property investment is not as volatile and uncertain. In the long run, property investment usually has a higher ROI than stock investment.
Great Tax Benefits
The US Tax code provides several benefits to real estate owners, which makes investing in real estate more attractive. These benefits include the deduction of mortgage interest and the acceleration of depreciation which can shield a portion of the cash flow generated by the investment.
Additionally, at the time of sale, the IRS allows investors to exchange into another investment property and defer all taxable gains into the future. This provision, known as the 1031 Exchange, can be a valuable tool for investors looking to minimize their tax liability. Peak Commercial has a dedicated team of experts who work closely with clients to navigate the 1031 Exchange process and maximize the benefits available.
Decrease in Property Debt
The net operating income of a property is used to reduce the debt owed on the property. The net operating income is calculated by taking the property’s gross income and subtracting all expenses incurred before making debt payments. This will leave enough money to make the debt payments, reducing the amount of debt owed and creating equity.
Build Your Investment Portfolio in Less Time
Apartment investments are a good option for investors who want to build a large portfolio of rental units. Managing one property with 20 units is easier than managing 20 different single-family homes. With a single-family home, an investor would need to negotiate with 20 different sellers, conduct inspections on 20 houses located in different areas, and open 20 separate loans for each property. To avoid this headache, investors purchase one property with 20 units.
Large Appreciation Opportunity
Multifamily rental properties are an excellent investment, as they increase in value more than other types of investments. This is because apartment complexes make more money as the property is better managed and rent is increased. To ensure your property keeps its value, you must take care of it by regularly repairing and maintaining it. You should hire quality maintenance staff to keep the property clean and safe.
Lower Financial Risk
Apartment investment is often considered safer than other real estate types because people always need somewhere to live. Even during an economic downturn, people will still need a place to stay, so there will always be a demand for multi-family units. This is in contrast to office or retail properties, which usually see a decrease in demand during an economic downturn.
Easier to Finance
While more expensive than single-family properties, multi-family investment properties are generally easier to finance when all things are considered. Apartment investments are less risky to lenders because multiple families live under one roof. If one family defaults on their loan, the other families are still responsible for their share of the mortgage.
Apartment investments are less risky for lenders because they are less likely to experience vacancies. When a vacancy occurs, it has less of a negative impact than a single-family property because the property still generates cash flow from the rents collected from the remaining families.
You Can Consolidate Property Management
Multi-family real estate investors can contract an external property manager to take care of their properties. This is because they produce more monthly income and can afford to pay for this service. Single-family home investors usually can’t afford this because their portfolio size is too small. Multi-family properties can be more affordable to manage because a professional management staff usually works full time and may even live on the premises. With units being centrally located, it cuts down on the amount of space that needs to be covered.
Typically Only One Traditional Loan Required
Multi-family properties can be easier to finance than other real estate types because they usually require only one loan. This can be contrasted with purchasing multiple single-family rental properties, which would require multiple loans that can be difficult to keep track of. Other real estate types may require different loans that mature at different times, which can be confusing for first-time investors.
When you purchase a multi-family property, insurance policies will be more complex if there are more units or certain features on the property that could increase an owner’s liability. However, insurance companies are often experienced with multi-family assets and can implement a policy without difficulty. You can also get a single policy to cover your multi-family properties under the same provider as your portfolio grows.
It Supports Long-Term Wealth Building
Perhaps the best benefit of apartment investments is the long-term wealth-building potential. When you own a multi-family property, you can use the rental income to pay down the mortgage, which can help you build equity. You can also benefit from appreciation, which can significantly increase your property value over time. Investing in multi-family properties can be a great way to earn income and build wealth. If you are considering investing in multi-family properties, be sure to consult with a qualified real estate professional to get the most out of your investment.
Apartment investments offer many benefits, including the potential for high returns, the ability to diversify your portfolio, and the potential for positive cash flow. However, it is important to remember that, like any investment, risks are also involved. Before investing in an apartment complex, be sure to do your research and consult with a qualified financial advisor.
At Evergreen Investments, we connect homeowners to wealth-building opportunities with their residential real estate assets. We provide property owners and investors with industry-leading investment research and world-class advisory and transaction services. With unparalleled market knowledge, access to hidden investment off-market opportunities, and real estate-related advisory and property support for a lifetime, you can rest assured your investment is worth it. If you’re looking for apartment investments, we can help! Get in touch with us to explore your options!