Table of Contents
In this article:
- Apartment complexes are one of the most lucrative real estate investments.
- While this type of investment can create a positive cashflow, it's important to understand the market as a whole as well as your specific market.
- Owning an apartment complex can be a source of passive income if you strategize it correctly.
When you drive through your hometown, you no doubt will pass at least one, if not several, apartment complexes across the city. Think of one in particular right now. Does it appear to be in good repair? Are the cars in the parking lot better than average quality? Is there an office building and community amenities like a playground or pool?
If you answered yes to any or all of these questions, that is an apartment complex that generates a significant amount of revenue. An apartment complex is a tried and tested solution for generating massive amounts of passive income and creating true generational wealth.
If you’re considering investing in apartment complexes, here’s what you need to know before your break ground or write a check.
Why Consider An Apartment Complex?
The potential for payoffs and a wide range of benefits from this type of investment is exponential. From a steady cash flow to premium tax advantages, and portfolio diversification, an apartment complex can provide them all.
For those persons and families who can’t afford to live in a single-family home or prefer less maintenance and upkeep responsibilities or enjoy the added amenities, an apartment complex is an ideal solution that won’t break the bank.
Let’s do a little bit of math:
The average apartment building in the US has between ten and twenty individual units, and the average apartment complex has between three and eight buildings. In the middle of the road, that’s just shy of 100 units. For easy math, we’ll round up.
With an average rental amount between $1,200 and $2,000 per unit, an apartment owner would be looking at a recurring monthly revenue of $120,000 to $200,00. While that’s obviously not all profit, for an average housing market, these numbers are wildly tempting to investors and developers alike.
At Teifke Real Estate, we believe that 2023 is the year to diversify your portfolio and dig into the world of investing in an apartment complex.
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Contact UsApartment Complex Statistics
In 2021, the value of lending dispersed for multifamily units reached nearly $490 billion dollars. Claiming 42% of the overall total US market in 2021, apartment complexes and multi-family dwellings represented more real estate than the office space market.[1]
It was also recorded in 2021 that the value of U.S. multifamily dwellings exceeded $111 billion and is expected to remain on the rise for several more years. This is evidenced by the effects of the recent pandemic when multifamily vacancy rates dropped significantly by almost 9% in 2020 and still held strong at nearly 6% in the first half of 2022.[2]
From the developer’s perspective, in most major cities across the US, apartment complexes cost less to build per square foot than single-family homes.[3] Barring choosing the wrong market or an unforeseeable disaster, there are very few ways to lose in the apartment complex market.
Advantages of Owning An Apartment Complex
Massive Cash Flow
As the average numbers above reflect, the cash flow of an apartment complex is nearly unmatched in the real estate market. Even a smaller apartment complex with only three buildings and ten units each, on the low end, could still generate nearly $40,000 in monthly recurring revenue.
Community Support
In rapidly growing markets, housing costs often become too high for the average workforce or for first-time home buyers, and mortgage rates get out of control. Communities rely on apartment complexes to provide for the gap in the market and create affordable housing.
Asset Appreciation
A well-managed and well-maintained apartment complex will retain its value. When you’re ready to sell off your investment, you could see a significant return.
Tax Benefits
From operating and owner expense deductions to avoiding FICA taxes, the option to defer capital gains taxes, and deductions for depreciation, there are so many ways to leverage the available tax breaks in your business.
Real Estate Portfolio Diversification
Everyone can invest in single-family real estate, and perhaps you already have. Whether that’s house-flipping, wholesaling, or buying and holding, nothing pays off quite like an apartment complex. With the sheer amount of potential monthly revenue, it’s a strong contender for upgrading and diversifying your real estate portfolio.
Potential Considerations Of Owning An Apartment Complex
Before you write the check, Here are a few potential disadvantages to understand when considering breaking into apartment complex ownership.
Market Volatility
As with any real estate investment, what the housing market does, the rental market will follow. this could impact the apartment complex property value, the revenue potential, and the profitability of your investment. If the local housing market drops significantly, you may find yourself reducing rental rates or constantly having to fill new vacancies.
Multiplication of Tenant Issues
Any apartment complex property manager will tell you that the more tenants you have, the higher the likelihood of tenant issues. Anything from unit maintenance requests or sustained damage to problems with parking, noisy neighbors, and pets could cause more of a headache than you or your property manager would care to deal with.
Increased Costs of Property Upkeep
Even with a small apartment complex, there will be far more lawn care, landscaping, building repairs, seasonal maintenance, and general upkeep required than with a single-family home rental. Until the entire complex is filled, this may pose a financial strain on the investment.
Tips For Owning An Apartment Complex
The TRE motto for any real estate investment is to find a great deal, in a great location, with great financing and a great property management solution. It will only truly pay off it checks all the boxes for greatness.
Start With The Market
It’s important to understand both the housing and the rental market and whatever area you’re considering making a purchase. Make sure you have a clear picture of the current and future projections for supply and demand.
Establish A Network
Before you seal the deal on any property or apartment complex, gain valuable insights from local real estate advisors, lenders, and property managers. Leverage their support throughout the process.
For Developers: What’s Your Strategy?
If you’re planning to build an apartment complex from scratch, what kind of asset are you building? is this a budget-friendly, no-fluff apartment complex? Or is it an amenity-stocked and high-quality apartment complex? Or something in the middle? If you know your market, you will know which one is the best fit.
Secure Great Financing
Even for a conservative apartment complex, the financial investment for purchasing or building will be significant. It’s important to have reliable and flexible financing available, even if it’s from an alternative source.
Hire A Premium Property Manager
Hiring a top-notch property manager is always going to be money well spent for an apartment complex. There are so many moving pieces like units, tenants, buildings, and on-site responsibilities that it’s important to have someone you trust in your corner.
Want To Begin Investing In Apartment Complexes? Start Here.
Owning an apartment complex takes a lot of research, patience, and capital to get started. It’s important to be well-informed about your market, your vision, and your financing options. If you’re looking to own an apartment complex or build one, let’s connect! The TRE team is ready well-versed in helping real estate investors like you pull the trigger on profitable deals.
Frequently Asked Questions About Investing In Or Owning An Apartment Complex
Below are some of the most frequently asked questions regarding investing in apartment complexes.
Apartments are strictly rental units, whereas, in many cases, condos or condominiums offer home ownership. While condos are built like apartments, they function more like townhouses with the option to purchase.
An apartment complex is made up of multiple apartment buildings. An apartment building by itself would not necessarily be considered a complex.
This will vary wildly depending on the terms of your financing. However, based on our cursory numbers above of an average of $120,000 – $200,000 in monthly revenue, we can assume that at least two-thirds of that amount goes to expenses, debt, and reinvestment. That leaves between $40,000 to $66,000 in monthly profit. Obviously, these are cursory numbers and may not reflect every individual deal or financing obligation but they’re nonetheless encouraging.
If you’re buying an existing complex, you may incur expenses like marketing vacancies, insurance premiums, seasonal maintenance, property management fees, and move-out repairs or upgrades.
Yes, if structured properly, it certainly can be 100% passive income. With the right team in place, you can remain in the investor role and collect your profits.
Sources
[1][2][3] Statista Research Department (2022 Aug 23) Multifamily homes in the U.S. Statista. Retreived from https://www.statista.com/topics/5396/multifamily-homes-in-the-us/ 17 April 2023