Purchasing real estate is an excellent investment option because it can generate passive income through rentals. Aside from that, property value increases over time, making it well worth the money to start shelling out some money early on! It all starts with buying a condo, an apartment complex, or a piece of land—the rest follows from there!
An apartment complex consists of five or more units. Compared with single-family homes, duplexes, or even townhouses, renting out an apartment complex has its unique rewards and complications.
Advantages of Owning an Apartment Complex
The upfront cost of buying and maintaining an apartment complex is exponentially more significant than smaller properties. But owning several apartment units can reduce risk while increasing profit potential as well!
In the event of one vacancy in an apartment complex, the owner still has an income stream coming from other units as opposed to owning just a single-family property—where every day that the space remains empty is a drain in finances!
An apartment building’s maintenance costs are spread across all its units, so the total cost is lower per unit. Amenities such as laundry, parking space, upgrades, and vending machines are more profitable when used by several households, so these generate additional income for owners, too. You can also increase the property’s value with small remodeling improvements and significantly raise future tenants’ rent—for as long as it’s within reason, of course.
The First Steps in Buying an Apartment Complex
There are four types of apartment complexes:
Class A: Less than ten years old, with amenities like pools and fitness centers.
Class B: Between 10-20 years old, but still in good condition.
Class C: Up to 30 years old, with no amenities, and will need renovation.
Class D: Subsidized housing units in low-income areas. No amenities are included, and it will certainly need renovation.
Real estate investors look for apartment complexes for sale by checking online listings or working with a realtor or commercial property broker familiar with the area. The building type is an important consideration when making investment choices, along with the location, number of units, amenities, and the building’s general condition.
When it comes to purchasing an apartment complex, the key financial metrics come down to the rent roll, occupancy rate, and maintenance costs.
The rent roll consists of each unit’s rent amounts, the number of beds and baths, and lease terms. On the other hand, a reasonable occupancy rate is anything above 90% to turn in a significant profit. Meanwhile, maintenance costs shouldn’t exceed 40% of income from rental fees and amenities.
Financing An Apartment Complex
Financing an apartment complex is significantly more intricate than the funding of a single-family home. Investors are advised by realtors, brokers, and real estate attorneys as they make their decision in such scenarios. Most real estate investors set up a limited liability company (LLC) to protect personal assets from the property’s debts.
The typical amount needed for apartment complex financing is a 30% down payment, with loan approval based on the property’s profit projections. Non-recourse loans protect the investor and will not allow creditors to seize personal property in the event of loan default.
Conclusion
Buying an apartment building requires a deep understanding of managing property finances. It entails more research, more time, and more capital. It also has high-profit potential, with costs spread out across several units. For your efforts to really come to fruition, your best option is to partner with a reliable real estate agent to iron out the details.
Are you having trouble making your real estate decision? Buying Apartment Buildings provides all the resources and information you need to help you through the process. We provide top-notch consulting services if you want to buy or sell an apartment complex. Get in touch with us today!