Many people consider the ownership of an apartment complex. If you are one of them, then you should know that investing in an apartment is one effective way to build wealth. You don’t have to work eight hours a day to earn money. You just need to rent your place out.
As a beginner, single-family rentals are an excellent place to start. Over time, you can level up by owning an apartment complex. Commercial real estate is a good source of cash, but investing isn’t as easy as it looks.
Owners and investors have to put in a lot of hard work to make sure that their properties profit. If you plan on purchasing an apartment complex, it’s best to learn about the pros and cons. That way, you can make more informed decisions.
Advantages of Owning an Apartment Complex
Economies of scale
Economies of scale refer to the ability to spread your costs over multiple income streams. Suppose you are a property management firm that can manage many units. You can spread the cost on these units, so you can charge less and reduce fees. Essentially, it is the concept of paying less because you have more.
Increased cash flow
Owning an apartment complex allows you to have multiple income streams. In case of occasional vacancies, you won’t feel the impact because you have other occupied units. You can also focus on other jobs and investments.
Equity growth
Thanks to the amount of profit you can earn each month, you can easily pay your mortgage and increase your equity. Moreover, equity will increase once the value of the property increases. So, when you sell it to another investor, you can price it higher.
Tax Incentives
You can get a qualified business deduction of up to 20% when you own an apartment complex. Not only that, but you can get substantial mortgage interest and depreciation deductions. Even from a tax perspective, an apartment complex is a good investment.
Disadvantages of Owning an Apartment Complex
Cost
One of the biggest hurdles of buying an apartment complex is the cost. The value of each apartment complex is based on the income it produces or could potentially create. Hence, it will cost more than a single-family residential home. The cost will also vary based on the type of property and age.
Unreliable tenants
Tenants who don’t pay are the biggest headache as an owner of an apartment complex. They disrupt your cash flow, and there is also a risk of never receiving payment. Some even continuously break the rules you set.
Rowdy neighbors
There are certain situations when the neighborhood itself is the problem. Changing the neighborhood is hard since you won’t control outside the building. It’s up to you to learn about neighborhood dynamics before you purchase an apartment complex.
Maintenance expenses
Keeping your apartment complex in tip-top shape is important. It’s an investment that you should learn to maintain. However, there are plenty of situations where you might experience unexpected problems. That’s why it’s helpful to have insurance.
Time
When you become a landlord, you’re going to need to spend more time taking care of your property. You will spend time dealing with tenants’ concerns. If you want, you can hire a manager for these responsibilities.
Conclusion
Learning about the pros and cons of buying an apartment complex is helpful to make a sound decision. Despite the disadvantages, there are a lot of benefits you can gain by owning one. With careful planning, it can be a lucrative investment.
Do you plan on buying an apartment building? We can help you buy or sell apartment buildings. Call us now.