There are countless ways to invest your hard-earned money in real estate. From single family residents, real estate investment trusts (REITs), notes, self-storage facilities, multifamily properties, and much more. Of all the real estate investments, I have chosen to focus on apartments. The reasons I am focusing on apartments is because they are:
1. A Human Basic Need with More Renters than Ever
When the markets are at an all-time high, people need a place to live. During a depression, people need a place to live. People always need a place to live. The US Census Bureau has shown that population has increased 5.6% since 2010. This increased population will require more housing. The Bureau also shows that that the amount of renters has increased 12.9%. With the demand for housing and rental properties to increase, apartments will satisfy those increasing demands.
2. Able to Generate Cash Flow
With single family investments if the tenant doesn’t pay, YOU have to pay all the expenses. However, with investing in apartments, if one tenant doesn’t pay, you have several other units to make up for the one tenant not paying. With apartments you are diversifying your risk by having several tenants instead of hoping your one tenant pays.
3. Are Able to Control Appreciation
Unlike the price of single family homes, apartments have a formulaic approach when it comes to valuing the asset. Apartments are valued by the following formula:
This means the operator has the ability to raise the value of the asset by increasing income (raising rents, providing other revenue generating services, etc) or reducing expenses (reducing vacancies, implementing energy efficient appliances, etc). When the value is raised by the syndicator, the investors receive this value in the form of larger returns once the property is sold.
4. Easier to Scale.
It takes just as long to coordinate all the people involved (seller, broker, inspector, contractor, property manager) to do one unit as it does to do a 100 unit building. Also when investing in apartments you have a team of people helping find a property, execute the business plan, manage the tenants, and sell the property. So why do it alone and spend the time getting one unit, when you can get 100 units in one transaction.
5. Handled by Professional Property Management
A property manager will be managing the day-to-day operations for large apartment complexes. The property manager will be heavily vetted before the investment by the apartment syndicator. The vetting process will make sure that the property manager can execute on the business plan and has a positive track record for managing similar sized properties and tenants. The syndicator will continue to keep in touch with the property manager to ensure the business plan is being executed so that the investors can receive their projected returns.
If you have any questions about apartments or multifamily investing feel free to message me at anytime and I would be happy to help.
Thanks again, and keep leveling up!