Investing in apartment buildings is one of the best investments you can make with your money – better than the stock market or even single family rental property. Just a warning though: apartment building investing is not a get-rich-quickly scheme. But it is the best way to build long-term wealth. Here’s why:
Reason # 1: Apartment Buildings Give You Three Ways to Make Money
What I like about commercial real estate is that you have three ways to make money:
- Cash flow: apartment complexes typically produce steady cash flow.
- Amortization: your tenants are paying down your mortgage for you – isn’t that great? This can really add up after several years.
- Appreciation: as you increase rents and control costs, your operating income will increase, and with it, the value of the property when you sell.
When you combine cash flow, amortization, and appreciation, the total return of an average multi-unit property investment is impressive, especially after 5-10 years or longer.
Combine this with reasons # 2 – # 5, and apartment buildings are hard to beat as an investment.
Reason # 2: Apartment Buildings are Easy to Finance
Compared to any other business, commercial real estate is the easiest business to get financing for. Banks like the security of real estate. People understand and trust real estate, so it is easier to raise money for real estate than any other business. Apartment buildings are even easier to finance because they’re less risky than a single family rental property. This is because multiple units spread out the risk of unpaid rent (this is one argument that you should invest in as many units as you’re comfortable).
Reason # 3: You Control the Value of an Apartment Building
Unlike the value of a house, which is dependent on what similar houses in the same area sold for, the value of commercial real estate depends on the income that property produces. The higher the income, the higher the value.
This means you, as the apartment investor, aren’t dependent on the market, which you can’t control. You don’t have this issue with commercial real estatee (well, you do, but it’s much less of a factor). Instead, you have much more control over the value of the property: if you maximize rents and minimize expenses, you will increase the net operating income, and that will increase the value of the building.
This makes apartment building investing more predictable, stable, and more easily understood by banks and investors.
Reason # 4: Apartment Buildings Produce Passive Income
Who wants passive income? Who doesn’t? But what business can reliably produce a good return without requiring your full-time involvement? The answer is, of course, apartment buildings, one of the few businesses you can set up to produce passive income.
Using a professional property manager not only frees up your time, but also ensures the building is managed properly. Once an apartment building is stable and the property manager is performing, your involvement in the investment can be minimal, allowing you to spend your time elsewhere (finding new deals, or spending time with your family!).
Reason # 5: Investing in Apartment Buildings is Less Risky
As a commercial real estate investor, you always try to balance risk vs. reward. Investing in apartment complexes can yield a reasonable return at a relatively low level of risk. Want proof? Why else would banks so readily finance the purchase of apartment buildings? Because in their mind, commercial property presents an acceptably (low) level of risk to them.
In conclusion, apartment buildings, and commercial real estate in general, give you a unique mix of high return, low risk and passive income which make it the best long-term investment in the world.
Who’s ready to buy their first apartment building? Read my story of how I bought my first 12-unit apartment building with private money and nearly went broke.