Investing in an apartment complex or multi-family property can be a smart financial decision. Do it right, and you get lucrative returns through passive income, equity gains, and tax breaks. But a significant return is not always a guarantee. Do your homework before taking the plunge and investing your hard-earned money.
It’s crucial to understand the different apartment buildings available for investment, such as low-rise, high-rise, multi-family, studio, lofts, duplex, or triplex.
After you identify the location you want to invest in, the most critical factor is establishing the investment’s overall risk profile. You need to be aware of several aspects of the complex, such as renter profile, age of the property, and the unit count.
Analyzing these factors puts you in a better position to make a sensible investment and enjoy the financial rewards for decades to come.
Here are a few features of the ideal apartment complex.
A smaller building with fewer units won’t have the money-making potential of a larger property. For instance, an apartment complex with less than 75 units will succumb to market fluctuations more severely than a larger building.
An unprecedented 5-unit vacancy will significantly impact cash flows in a 50-unit complex but would be much less impactful in an apartment with more than 100 units.
Moreover, an apartment complex with more than 75 units can afford a dedicated property management ratio without hurting operating expenses.
All apartment complexes come in various shapes, sizes, and asset classes. Ideally, you should choose buildings that have a mix of one, two, and three-bedroom units. Investing in a blend will give you more flexibility and make your apartment complex more attractive to a broader pool of potential renters.
Two-bedroom apartments are usually the most desirable. Consider a multi-family property with a higher two-bedroom apartment ratio. If you are looking for an apartment complex with more one-bedroom units, be sure there’s a unique neighborhood characteristic such as a nearby university that will guarantee high occupancy levels.
Three-bedroom apartments offer higher returns on investment, but they’re the most difficult to keep rented in tough economic times.
Older apartments built in the 1980s might be cheaper than newer properties, but they will likely require more work to stay up-to-date on current code requirements.
These older properties are likely to have asbestos and lead paint that can cost a fortune to repair, increasing operational expenses.
Newer apartments that are eight years or younger will have lower operational costs, but they’re also the most expensive on the market. The high entry prices will limit cash yield for the first five to ten years, so it may not be a good investment if you are looking for immediate returns.
A new project will also be more susceptible to the economic environment. Lower-income growth, market vacancy, and reduced job growth will significantly impact a new apartment complex than a stable, middle-aged project.
Apartment properties that are 10-25 years old tend to have the most significant income growth and steady occupancy. They tend to be the most stable and have reasonable operational expenses.
There are quite a few different apartment styles: urban or town-home style, garden-style, mid-rises, high-rises, and many others.
Garden-style apartments generally feature one, two, and three-bedroom apartments with a shared exterior area and outdoor access to all units that many tenants find convenient. They also often have features such as picnic areas, a pool, and tennis courts.
While town-home style and high-rise apartments can be viable investments, garden-style complexes tend to be more cost-effective to operate and desirable as investment opportunities.
Popularity will often vary with the region, so be sure to evaluate current trends in your area before deciding which type of apartment property to buy.
Some of the most critical tenant profile components are income verification, credit verification, criminal background check, and employer. Be sure to verify these components as part of the lease audit to ensure you get the right tenants for your property. You want tenants with no felonies, an income that’s more than three times their rent, and a credit score between 500 and 700.
It also helps to note possible indicators of a poor tenant, such as recurring late fees and repeated service calls.
Purchasing in an apartment complex can be one of the most fruitful investments you ever make. Work with an experienced professional for expert advice and help on making the best investment possible. Call Yankee Capital today at (781) 400-8778 for additional information regarding apartment investing today.