One of my long-term goals is to own enough real estate to bring in a full-time income from rental profits.
I’ve come to realize just how much goes into being a landlord and real estate investing. There is a lot of risk and a lot of work involved. With all that being said there is still a lot of potential for consistent monthly income from real estate.
While I’m starting small by simply renting out a studio apartment that is built into my current residence, I eventually hope to move on to a bigger investment. Which brings me to my question: would you invest in an apartment building?
Why I Want to Invest in an Apartment Building
My current plan for rental income is to start by investing in duplexes, four-plexes, and single family homes. I like the idea of being able to offer college students, 20-somethings, and families a good home to rent. This will obviously require a lot of capital and how I will attain that capital is a subject for another day.
I’m interested in buying an apartment building at some point but realize it will take some significant capital investment on my part even if I do have a partner that goes in on the deal with me. I personally would prefer to have full control over the property.
Because of the capital needed I always thought an apartment would be a later purchase, only after purchasing a number of single family homes and building my portfolio that way. I’ve been reading some of what Elite Apartment Coaching’s website has been saying on the topic and they advocate for skipping the typical process of investing in single family homes and going straight for an apartment investment.
Their approach is interesting and actually might be a better approach than going from single family home to single family home. Here’s my thoughts on why an apartment investment may be preferable to single family homes:
- Easier to manage – Before you scroll to the comments section to disagree, hear me out. I think it’s easier to manage an apartment building versus single family homes because all the renters are concentrated in one area. I can only imagine that the time and effort needed to manage 12 apartments all in the same building would be easier to manage than 12 single-family homes spread out.
- Higher ROI – This is only my initial thought, so take it for what it’s worth, but having 12 apartments carved out of one building has to be cheaper than owning 12 separate homes. When you have a shared electrical, HVAC, and other systems the cost of investing in the apartment building has to pale in comparison to the 12 homes. This would naturally lead to a higher return on income over time.
- Less Maintenance – Similar to what I just mentioned, when you have only one electrical system, one HVAC system, one building with 12 units that share walls, hallways, parking, etc. the maintenance will naturally be less. At the very least all the maintenance for, say, the plumbing system can be done at one location versus have separate jobs at separate locations. There is less that can go wrong in one building versus 12 homes.
Again, these are just my initial thoughts and I’m sure there are real estate pros who could argue the contrary point that single family homes are a superior investment than an apartment building. I personally am pretty convinced that owning an apartment building – however large or small – could be a really solid source of income and a great place to invest.
There are some clear negatives to owning an apartment, such as the risk of apartments being empty for a prolonged period of time, the nonstop upkeep costs, and needing to be “on call” or pay a company to be “on call” 24/7. The thing is, these drawbacks really are no different than owning single family rentals.
I may not take the plunge and purchase an apartment building for quite some time, but I do see myself purchasing one when I have more capital available and the option is realistic.
What are your thoughts on investing in apartments? Could you see yourself investing in an apartment? What thoughts do you have on real estate investing in general?
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I don’t think I would want to do it, but I can see why someone else would. I agree with all of your points on the advantages of an apartment building over several single family homes. It sounds like you’re the kind of person who could deal with the inevitable stress of dealing with the unpredictability of renter’s human nature. Best wishes, DC! :)
As of right now I think investing in an apartment building would be an ambitious goal for me. First, it would take me a significant amount of time to gather up funds for the investment. Second, I’m not sure I would want to manage that many renters. I do eventually want to invest in single family households so I can generate income but I only want to take on a couple properties to see how it goes as a landlord. Investing in real estate is definitely further into the future for me so by the time I get to that point in my life maybe I’ll change my mind about apartments.
I have spent countless hours on BiggerPockets, but haven’t been able to pull the trigger into real estate investing just yet. My husband and I would LOVE to invest in an apartment building someday. Hopefully, it will be sooner rather than later. Good luck!
Hi Guys, I’m Josh with Elite Apartment Training (www.eliteapartmentcoaching.com.) There are a lot of advantages of investing in apartment building and you can do it without being the person managing the day to day. My first 20 unit property in cincinnati I go to once or twice a year and have management that does an excellent job with the tenants. I didn’t have much money and raised private money to fund the three that I own. I’m here to talk through any questions or thoughts that any of you may have.
savetosplurge Me too – Bigger Pockets was my daily news! Why not now? :)
kay lifestylevoices.com Thanks Kay, and thanks for sharing your thoughts! I would be really tempted to hire out the management of the property. I would have to make sure that was financially viable, though.
Josh_EliteAptCoaching I don’t know if this is the right forum for the discussion, but I’d be curious to hear how you “raised private money” yet still “own” the three apartments? I would personally prefer to own 100% or at least 51% of the property.
I definitely would prefer to have someone managing the property other than myself. An apartment becomes even more attractive as an investment if you are able to outsource that piece of it.
An advantage on an apartment is that you can give a discount to a tenant who can manage and repair the building. You can’t do that on a single family home, the challenges is the funding required. I do love real estate and would love to own a building, but here it would cost me a million plus
DC @ Young Adult Money Josh_EliteAptCoaching It’s a lot to type out but, would be happy to discuss with you :). Yes, having a controlling share is attractive but, you can always have decision making rights without owning the majority of the deal.
Yes, I definitely couldn’t have done what I’ve done without a strong property management team.
Let me know a few times that you have available.. We can set up a little time to talk.
Charles@gettingarichlife Yes, there are definitely higher barriers of entry in multifamily within larger metro areas. But, if you can get comfortable with investing outside of your backyard (with the right teams in place) you can build better economies of scale with cap rate driven returns. My first 20 unit property is worth around $500,000.. that same building in and around NYC would be worth millions!
Cool topic, David. Have you checked out Bigger Pockets or their podcast? The hosts have a lot of great info on this very topic, with different opinions on single family vs. small multi & larger multi-family. I know the financing is different once you get over 4 units, for what it’s worth, but don’t have any first hand knowledge of large multi-family rentals.
DonebyForty I know another blogger who writes for Bigger Pockets so I’ve checked it out from time to time. Definitely like what they have going on over at their site and seems like there is a wealth of information available.
Real estate, and in particular apartment building complexes are definitely on my radar as future investments for all the reasons you explain in this article. However, a deal would never go down unless I can get positive cash flow while using a management company. So, using an excellent realtor to help find bargains and places for negotiation should be the priority when I get started. I’ll check out that site you mentioned as I’ve been looking for a place to research further on this.
Thanks!