Investing in real estate is typically the best way to spend your savings. Since rental places will always be a profitable business model, it’s a safe and sustainable means of income. Although it’s advantageous to flip a house for single tenants or families, it may be better to invest in an apartment complex instead.
Much like buying a home as your primary residence, you need to weigh different factors to ensure a profitable investment. While purchasing an apartment complex has some similarities to buying a home, there are some distinct variables you need to consider.
Purchasing an Apartment Complex
There are different approaches to diversifying your investment portfolio. For example, you can invest in bonds, stocks, or even dabble in being a retailer for an established brand. However, none of these options offer the consistency and stability of owning a residential property.
Before you purchase an apartment complex to turn it into a residential property, here are three things you need to consider:
1. An Apartment Building’s Value
There are several ways to estimate an apartment’s investment potential. First, you can assess comparable properties nearby. You can check if these establishments are doing well or if these buildings’ ownership hasn’t changed for several years. You can also evaluate the potential investment you’ll earn by accounting for the expenses you need to oversee. This includes renovation costs from refurbishing to furnishing your property. Finally, you can start with an income-based approach to project the profitability of your property. This includes projecting the need for residential complexes in the area. If there’s a significantly high demand for nearby office-based companies, there’s a high chance that nearby residential spaces will be a profitable business endeavor.
2. Cap Rates
Identifying the investment potential of an apartment complex comes around much sooner than other residential properties. This is why a yearly cap rate will determine if your investment is worth the projected returns you could earn.
You can get the cap rate by dividing the Net Operating Income (NOI) by the property’s price. Therefore, when weighing your options between different properties, you must ensure that your cap rates are significantly higher than local market rates. This ensures that your property’s placement and strategic positioning will considerably impact the real estate market. This is why it’s necessary to check if it’s a wise choice to buy specific properties in particular locales.
3. Overhead Costs and Potential Profit
Like any residential property, an apartment complex comes with numerous overhead costs such as:
- Landscaping
- Maintenance and repairs, utilities
- Taxes
- Insurance
- Security fees
Although the variables above contribute to negative values to your cash flow, being a landlord also allows you to earn from your business model. This includes charging for coin-operated laundry machines, pet ownership fees, parking charges, and more. Utilizing the spaces you have to your advantage will lead to a better return on your investment.
Conclusion
Investing in an apartment complex is an excellent way to maximize your savings, especially if you’re preparing for retirement. However, since different apartment complexes have varying profitability projections, you need to ensure that you’re buying a property that will yield high revenue. Thankfully, you can find experts to serve as middlemen to give you a shortlist of viable property listings for sale.
If you’re wondering how to buy an apartment complex in the US, we’re the right service to call. We can connect you with prospects around your chosen local area, giving you the bright start to receiving sustainable income. Contact us today and find the right apartment complex for you!