Apartment Investing Awesomeness

Apartment Investing Awesomeness

I REALLY like buying apartment buildings.

They are AWESOME for so many reasons.

I will share with you why apartment investing is the IDEAL investment.

Of all the asset classes, and of all the types of real estate, apartments are arguably the best bang for your investment buck.

Here’s why apartments are the IDEAL investment…

“I” – Income – the best reason of all – The magic of apartment income

There are 2 sides to apartment income or the “I” part of the IDEAL investment.

It’s these two sides of a rather large coin that makes owning apartments a wise and mouth-watering proposition.

First, of course, there’s the money – or cash flow.

Because we’re dealing with multiple units and tenants, the vacancy problem is not as big an issue as it is with a single family house.

With a 200 unit apartment complex, you could have 20 empty units and still only lose 10% of your income for a short time.

On the other hand, a house that sits empty creates $0 in income and still has expenses and a possible mortgage payment.

Of course, 200 units means a lot of cash flow each month.

Not to mention that with each passing year, you can slightly increase rents and make big leaps forward in your income.

It works like this:

Let’s assume for a 200 unit apartment complex that after paying all expenses, the annual net operating income (NOI) is $550,000.

Now, let’s further assume you have an annual mortgage payment of $250,000.

Leaving an annual cash flow of $300,000 ($550,000 – $250,000).

Now, let’s say you want a raise, you want more cash flow in your pocket.

What do you do?

Well, you increase your rents by a small amount $10 to $20 a month per unit.

We will use $15 per month. So look what happens:

200 units x $15 per month x 12 Months = $36,000.

BOOM – Just by adding a small rent increase to each unit you just got yourself a raise of $36k.

How’s that for an IDEAL investment?

But wait there is more….

The other side of the Income coin

Now let’s look at the other way income makes an apartment IDEAL. When you purchase an apartment, the value of that property is based on its income.

Not gross income, but net operating income, or NOI.

Using the above example, a 200 unit apartment complex that generates net income of $550k each year is then divided by what’s called the capitalization rate, or cap rate.

Let’s assume a market cap rate of 10%.

So we divide the $550k NOI by 10% and get a purchase price of $5.5 million.

That’s what you pay for the property.

This is one of the great things about apartments. Income determines value, not what somebody “thinks” the property is worth.

Not bad, huh?

In the next four upcoming posts, we’re going to explore the other benefits of owning apartments and why they are IDEAL.

We’ll continue to use this example of the 200 unit building to show you how:

  • Depreciation works – great tax advantages.
  • Equity is built – already hinted at here.
  • Appreciation accrues.
  • Leverage.

If you are searching for an IDEAL investment, don’t hesitate to contact me.

If you are needing to REALLY improve your investment situation, whether its using regular monies OR IRA/401(k), you owe it to yourself to at least have a conversation to see if apartment investing is the IDEAL investment for you.

 

  • Marvin

    I really appreciate you sharing this information Bryan, it really is helping educate me! My goal is to purchase an apartment complex (or two, three, etc..) one day. Thanks so much!!!

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