Apartment buildings can be a great real estate investment. Although they will be far more expensive to purchase than a single-family home, there are many benefits that can be obtained from investing in an apartment building. The normal benefits of cash flow, appreciation, and equity are present. However, two additional benefits of depreciation and flexibility exist with apartment buildings.
Cash flow is the one of the best benefits of investing in an apartment building. Depending on the number of apartments in your property, the monthly cash flow you receive could be substantial. However, it is important that you take into account all of the applicable expenses that will affect your profit. Apartment buildings are far larger than single-family homes and will thus carry a higher insurance cost. Additionally, your taxes will be far higher.
Appreciation in apartment buildings, like single-family residents, is a great benefit. The higher the value of the property, the better off you will be. Appreciation can be achieved through time and through improvements to the property. As such, balance improvement costs and investment time in order to maximize your appreciation return.
Equity is one of the greatest sources of real estate wealth. Equity is the difference between the value of the property and the amount of any loans or debt attached to the property. Therefore, if the property is worth $100,000 and you owe $75,000 on the property, you have $25,000 worth of equity. This equity is created when you property appreciates. Equity can be cashed out for instant money in your pocket or can be used to purchase other investment properties.
One of the best tax benefits of apartment buildings is depreciation. The IRS has schedules that apartment building owners can use to calculate the depreciation on the property. Depreciation provides a tax break for you. Even though the apartment building may actually be increasing in value, you can still depreciate the value of the property for tax purposes.
Finally, the flexibility that apartment buildings offer investors makes them a great investment. In addition to rents, you can obtain cash flow through laundry services, vending machines, and other pay-per-use items that can be placed on your apartment complex property. Additionally, if the apartment building would make more money as other property (for example, as condos), you could convert the property to adapt to real estate market changes. The flexibility of apartment buildings makes them extraordinarily unique.