Investing in an Apartment Unit or Building

apartment investment properties.jpeg

Photo: Apartments Designed and Build by one of our Builders - Creation Homes.

Investing in an apartment requires an investing strategy that is aligned with the type of property portfolio you are building. Investors often find that managing apartments require a deeper level of involvement than managing a regular house and land, both physically and financially.

 

On the other hand, investing in apartments brings about unique benefits compared with other property types.

Pros and Cons of investing in Apartments

PROS

  • Recurring rental income

  • Creates opportunities for more creative sources of income

  • Multifamily properties with a single vacancy aren’t as much of a risk as single-family homes with a vacancy

  • Tax benefits

  • Property appreciation

  • Portfolio growth

  • Lenders tend to lend based on the asset’s potential

 

CONS

 

  • Tenants tend to not take great care of rental properties

  • Investing in an entire apartment building is much more expensive than a single-family home

 

Owning an apartment building is not without its potential downsides. When tenants move into a single-family home, they tend to occupy the property long-term. This could be for various reasons, such as being close to local schools, workplaces, and neighborhood preference. Because of this, tenants tend to think of the property as their own and treat it well. Conversely, apartments tend to have higher turnover, with tenants who treat their units with less care. This will generally require the owner to take up more time managing tenant turnover and maintenance issues. Also, the overall cost of maintenance will often be higher than that of a single-family property.

How to buy an apartment property as an investment

Learning how to invest in apartment buildings is by no means easy to grasp, but by familiarising yourself with the steps below, you will make the process seem much more approachable.

  1. Ask yourself: Is this right for me or will this suit the type of property portfolio I am trying to grow? Whether you have already built up a portfolio or are completely new to real estate investing, making sure that investing in apartment buildings is right for you is a crucial question to explore. Understand several factors such as cost and time. The costs of owning an apartment building include the initial capital requirement, as well as an ongoing cash flow matrix associated with managing several tenant units at a time. Second, managing an apartment building arguably requires more involvement and management, such as dealing with tenant turnover, leasing paperwork, and addressing maintenance issues. Before diving into this new endeavor, make sure both your schedule and finances are equipped to accommodate a big change.

  2. Source apartment deals and packages -  You can choose to search for properties on your own, with the help of a professional or service, or a combination of both. 

  3. Due diligence is crucial - For apartment purchases, factors to evaluate include the location, the number of units in the building, available amenities, and the building’s condition. These aspects will help you calculate how much rent you might be able to charge, as well as how much you will need to spend on necessary repairs and improvements. Also, the overall condition of the building can help signal how often repairs might affect your monthly cash flow. Look at the property’s location in relation to local socio-economic factors which affects affect profitability in the long run in terms of rental yield, occupancy rates, or resale value. 

  4. Finalise your deal - work with your broker and solicitor to check contracts and finance options.