Most people experience real estate investing for the first time by either renting out their residence when they move or investing in Single Family Residences (SFR). However, once you get over the beginner’s learning curve, you can quickly see that there are great advantages to apartment investing also known as Multi-Family Units (MFU). For someone looking to get great profits, apartments are a superhighway to a dazzling future.
There are many reasons why apartment investments are superior to most other investments. The most important are very simple though. Here are the most powerful reasons:
The first is cash flow. Cash flow on a multi-family apartment is always greater than that of a single family. Simply because you have more rents coming in. Most SFRs are valued in part by what a homeowner would pay to live there. This is normally much higher than what the economics of renting would make profitable. You end up paying a premium price on the house, making it difficult to have a positive cash flow each month.
The price of an apartment investment is almost exclusively based on the rents and expenses. This means the price of the apartment is based on the cash flow. As long as you purchase the Multi Family for a reasonable price, you should have a good cash flow.
The more units you have under one roof, like your apartments, the less risk you have. If you have a single family house and you lose your tenant, you’ve lost 100% of your income. In some instances, this could be your entire profit for the year. If you have an 8-unit multi-family and lost a tenant, you still have seven units with rent coming in to pay your expenses. You still are profitable.
ECONOMIES OF SCALE
Economies of scale are in multi-unit buildings, especially apartment investments. If you have six single family houses opposed to one six family, you have six roofs to be replaced or repaired, six lawns to be maintain, six tenants spread out through out your city or town. In your six family you have one roof, one lawn and your tenants are centrally located. Economies of scale are in your favor.
Also, if you don’t do your own landlording, but have a property manager, it likely will cost you less. Most property managers charge from 10-15% of gross rents to manage SFRs, because they know of the extra work. For apartments property managers generally charge less 5-7% depending on the size and price range, because there is less to do for the six in one place than the six scattered about
There’s a lot less competition than there are in single family houses. Why? Because there are few real estate “gurus” teaching hundreds of people how to invest in apartments. Face it, all of the SFR guru’s make investing in single family houses sound easy. That means there are thousands of investors swarming over single family homes. The smart investors go after apartments.
Your paydays are a lot bigger when you finally sell your property. This is because an apartment complex costs more than single family homes. Because of this they obtain greater appreciation. For example, a $100,000 single family house will in a market that appreciates 10% will be worth $110,000 while a three family house worth $300,000 in the same market (10% appreciation) will increase to $330,000. That’s $20,000 more money in your pocket!
So there are tons of advantages for investing in apartments. More profit, less competition and greater tax flow, among other good points, make apartments a superior investment. It is a great move to drive your financial success to another level.