Introduction To CRE Apartment Investing-why do it?
Purchasing an apartment complex can be an excellent investment for an array of reasons. Even newbies can purchase an apartment complex especially if they abide by the so-called 10-step guide. Also, be aware of the seven common mistakes rookie real estate investors make and know how to stay away from them (previous article from us).
Apartment investing may sound like a huge undertaking, especially for people who are relatively new to the real investment realm. Although purchasing an apartment complex is a method that should be taken seriously, it offers an array of advantages that simply cannot be taken for granted.
Is purchasing an apartment complex an excellent investment? Just like any class of investing decisions, there are advantages and disadvantages connected with purchasing an apartment that could be given consideration.
Investing in apartment buildings supplements an array of advantages that are extraordinary when compared to investing in single-family units. Recurring rental income every month for several units aids in increasing growth in income, while splitting maintenance fees lower the cost on each unit. To add, investors are given the freedom to spread the risk to all its units. When a tenant moves out from a single-family unit, the vacancy rate is entirely 100 percent. In contrast, when one tenant moves out from a ten-unit property, the vacancy rate is a fraction of the total. Further, the owner has the liberty to solidify the potential ADDED income of the property by incorporating amenities that are paid for by tenants, like vending machines, laundry, and the like.
Investing in multifamily units, however, are not without a possible disadvantage. Owning a property with multi-units is the same with the intensive type of management, such as dealing with a turnover of a tenant, or dealing with maintenance issues as well as repairs. People eyeing in multifamily investing should ask themselves if they are really prepared on becoming a landlord. If the answer is “no”, perhaps hiring a property manager or getting the services of a property management firm is the most efficient solution (what we do). Lastly, some may not take buying an apartment into consideration because what can be perceived as the prohibitive purchase price. But it should be stressed that when it comes to investing in multifamily real estate units, banks tend to look more at the potential financial wealth of the property instead of an apartment investors’ personal financial standing. In the case of multifamily units, the value of the building is a function of both market value and prospective income. Having said this, financing an apartment multifamily complex in some cases may be a lot more accessible than getting a loan for a single-family real estate investment.
Commercial Retail Space Unit vs. Apartment Building Rentals
This will only matter for those eyeing to take the plunge into real estate investment to also wonder about commercial retail spaces as well. Both sides can have an idea of needing a significant expense for acquisition, while others may believe that a commercial building will bring in more income. It is imperative to carefully balance the pros and cons of both investing features before selecting and going forward.
Initially, some may assume that it is a bit easier to look and manage tenants in the commercial space. However, because of the present economic downturn and those brought about by the pandemic, a lot of small retailers are being squeezed out by large scale ones and online retailers. Although a business may occupy a retail space for a longer period of time, vacancies are likely to be much harder to fill. In contrast, the demand for residential rental units is rising in demand.
This is practically the case in concentrated markets where it generates more financial sense to rent instead of purchasing, or where house buying is not attainable. Lastly, investors should also take managing turnover into considerations in the retail industry can be a bit expensive. When a business moves in, they have to figure out space according to their preference. As with any scenario, investors should mull over prospective downfalls linked with any type of investing niche.
Purchasing an apartment vs. purchasing a Condominium
A lot of people actually think that owning a condo as well as an apartment is just similar, but they are basically very different in a lot of ways for both homeowners and real estate investors. When talking about condominiums, the buyer owns the interior space of the unit itself, while the exterior spaces are actually owned in common, such as parking lots, stairs, grounds, pools, and the like, homeowner’s association. Those who opted to invest in condominiums are expected to pay monthly dues and face stricter rules that might make remodeling, renting out, or reselling the unit. In comparison, real estate investors who own the apartment unit will basically own the entire structure, making them free to enhance and rent out units as they please.
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