With over 25 years experience as a real estate investor, Melanie is a certified business advisor. In Fit Small Business’s content on real estate investing, property management, and financing, her expertise is highlighted.
Investing in apartment complexes involves more work than buying single-family homes, and requires a deeper understanding of managing property finances. Buying an apartment building generally involves seven steps, including determining if apartment complexes are right for you and finding the best option for Units for sale Wollongong.
Apartment complexes have many benefits
Apartment investing has many advantages. The potential for recurring income, spread income across many units, and lower per-unit maintenance costs are a few of these advantages.
Apartment buildings provide ongoing income, which is one of the main reasons to buy them. A good apartment building will pay out recurring monthly income as a positive cash-on-cash return if the deal is right and the finances are solid.
You probably know about a common vacancy problem if you rent single-family properties. Your income is lost completely if there are no tenants. A high vacancy rate is mitigated by apartment buildings. Even if one unit is vacant, you will still have two to generate revenue From income, expenses can be covered and positive cash flow can still be generated.
Maintenance costs per unit are lower
Apartment building owners benefit from economies of scale. The roof must be redone for all units, for example. The repair affects each and every unit in the building. If you need to repaint more than one unit, you won’t waste paint resulting from only one unit’s need.
Additional Income Sources
You can add additional sources of income, such as vending machines, ATMs, and coin-operated laundry facilities, if your building is large enough. Additional income can also be generated by renting parking spaces and billboard spaces. You can charge extra rent for air conditioning units, upgraded appliances, and upgraded kitchens and bathrooms.
Financing based on revenue
Financing for apartment buildings is based primarily on the financial performance of the building (rather than your personal situation). Thus, when approving a loan, banks will be looking primarily at the building’s financial situation. Low FICO scores are a benefit in this case.
Using the rent rolls as a basis for valuation
The value of an apartment building is determined in large part by its financial performance. Rents increase the value of a property, so if you can increase them, it will increase its value.
Apartments with multiple units significantly reduce risk. It is less impactful to have a vacancy in a large building because Small apartment building or single-family home. Property owners who own multiple units can spread the maintenance costs more evenly than those who own multiple single units. A roof replacement on one four-unit apartment building is likely to be less expensive per unit than a roof replacement on four single-family homes.”
Apartment complexes have their cons
A multi-unit property or even a single-family home can be more difficult to acquire than an apartment building. A bit more intensive management will be required, and the type of tenants will be different. You can also expect a higher property management cost and more frequent maintenance.
“Another disadvantage of purchasing apartment complexes is that they are relatively illiquid assets. Trying to sell an apartment building can be time-consuming and expensive, as it involves scheduling conflicts and dealing with real estate agents. Investors in need of cash quickly may find themselves in a difficult situation.”
When a building has more than four units, management becomes much more complicated. If you are unable to manage the property yourself, you will have to hire outside management services.
It may be a good idea to hire a property management company. You might also hire a property manager on-site. Each comes with its own Managing benefits costs and supervising the manager are important. A property manager typically charges 10% to 12% of gross monthly rent.