Did you know you could create more wealth by investing in apartments than houses?
Yup, apartment investing is a hot and relatively untapped opportunity, and big money is getting in on the act.
Here are just a few reasons why:
- It’s getting more expensive to build independent housing units.
- Many millennials prefer to rent apartments than buy homes.
- Rentals in big cities are on the rise as we return to the old normal. (source)
Investing in apartments is a great way to own real estate in convenient locations. You can find them in downtown areas, as well as around popular recreational spots, busy interchanges, and major shopping malls.
Convenient locations = easier to attract tenants + easier to sell.
Hooked and want to invest in an apartment? I’ve got you.
Today, I’ll take you through a list of ways to invest in apartments and discuss how they can boost your investment earnings.
How to Buy an Apartment Building
Apartment buildings are going to cost more than your average home. I know, it’s obvious. But this doesn’t mean they’re out of your reach. There are many ways you can easily gather the funds together to acquire your very own building.
Buy it Alone
If you have the money available, this method is always an option, but bear in mind it is a big investment. You decide and plan how your building operates, and you reap all the benefits. However, you are also solely responsible for ensuring the project is completed and running smoothly.
Buy with a Friend
Buying a building as a partnership will also give you much more freedom than other options. It’s a great place to start if you’re beginning your apartment journey. The only downside is that you will have to agree on how you will handle the project. If you can’t fully trust your partner, you may wind up in a lot of trouble.
Providing your capital as part of a larger pot will give you a share of the pie. However, it doesn’t give you much choice as to what the pie is. You will have input, but the committee ultimately makes the decisions. If you feel the project should go one way, but everyone else disagrees, you’ll have to accept it.
Real Estate Investment Trusts
Like syndications, a real estate trust is a large pot of several investor’s money but on a much bigger scale. The major difference is that you don’t get any input at all. They also work with much bigger funds and generally invest in multiple properties. Trusts can give you a good form of passive income, though, so long as the managers know what they’re doing.
How to Buy an Apartment Building
Whether you intend to invest in an apartment building alone or with a partner, here are a few considerations you’ll need to make:
- What kind of building do you want? Apartments come in many shapes and sizes, and bigger options involve large buildings already divided into individual homes. Alternatively, you could go for a large townhouse that can be divided into smaller apartments.
- Where is the building going to be? This will tie into what you want, as where you want it will limit what’s available.
- How many tenants are you looking to have? This will factor into the size of the building and determine the staff you need to hire to manage it or whether you can do it yourself.
Once you find a unit (or multiple) that you like, do your due diligence. You and any partners involved should go over your prospective building with a fine-tooth comb. Have it inspected, check all local laws and permits, tenancy rules, and the state of the local economy. All these factors will impact your project, from what you can do with it to what you might earn back.
Always do your due diligence. Then arrange the funding needed to invest in the unit.
After acquiring any loans or grants needed to buy it, the hard work begins. Hiring building managers, deciding what needs to be done with it, and how the project will work comes next. This is all up to you if you have invested alone, but in partnerships or syndication arrangements, you might be able to share some of the responsibilities.
Pros of Apartment Investing in 2021
So now you have an apartment building of your own. What kinds of benefits are you looking at?
• Tax Advantages
Investing in apartment buildings saves you from having to pay self-employment taxes. This is particularly helpful since you can earn a second income from apartments. Also, any capital gains earned from apartment investment are capped at 20% if held for more than a year before reselling.
• Rental Income
Apartments exist to be lived in, so naturally, your building will be tenanted. You can make a good monthly income based solely on rent. Unlike regular building investments, rent provides you a passive income that will last if you keep the building occupied.
Apartment buildings don’t just have to contain apartments. You can earn a little extra by installing other amenities, such as gyms, pools, parking garages, and party/recreation rooms.
As with any other building investment, if you put the time and effort into improving your apartment building, it will gain equity. It takes a bit more investment and patience, but over time you can improve on the building’s worth and sell off for an even bigger profit.
Apartments and units are popping up everywhere, which means more opportunities for you to create new wealth. If you invest in large apartment complexes, you also get to occupy amenities that you would otherwise need to purchase separately like tennis courts, saunas, gyms, and spas. Seriously, apartment investing – especially multifamily apartment investing – is one high return investing strategy that should be on your radar this year and beyond.