Is Owning An Apartment Complex A Good Idea?

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.

Apartment 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.