Have you ever driven through your town and looked at those big fancy apartment buildings or complexes and wondered who owns them?
Or maybe you’ve gazed in envy thinking about how much money that lucky investor must be receiving with all of those monthly rentals pouring in?
The plain truth is that of all the real estate investing opportunities like single family homes, commercial office space, industrial parks, storage rentals and more – apartments are one of the best investment vehicles to own.
Why is this exactly?
Let’s take a look at a few keys that successful investors know and have used to unlock the door to wealth.
#1 – Demand is always there
Why are there so many apartments?
Simple – people need a place to live and apartments make that easy for them.
There are many different classifications of apartments from A to D – essentially high-end to low-end. Getting an apartment is pretty easy. You don’t need excellent credit, you only need a few hundred dollars for a deposit and you’ve got many options around town.
For college students, young professionals, singles, older people, low-income workers and temporary residents; apartment living offers many positives and there will always be these segments of a community.
#2 – Stability
What would you rather have – 100% of the efforts of one person, or 1% of the efforts of 100 people?
Think of it like this: you’re rowing a boat and you fall out – well that’s it. The boat goes nowhere.
The boat being your financial situation, let’s say.
You’re in a boat being rowed by 100 people and 10 people fall out. Do you even notice the difference in the speed of the boat? Probably not, right?
Apartments are like that. Instead of only one tenant paying you at a time on a single family house, for a large apartment complex you have 20, 100, 400 tenants rowing for you.
Should you have a 5% vacancy rate, or have to evict a couple of people a quarter – it doesn’t effect your bottom line nearly as much.
That’s what is known as a stable asset with protection against change.
#3 – Income determines value
Here’s a really juicy one. When you buy a single family home to rent – you, the investor has to consider the income and determine what you’ll pay for the house, right?
Suppose you know that in order to rent the house for $1,000 per month, you can’t pay more than $115,000.
However you’re competing with other buyers who are looking for a home. They’ll pay $125K, or even $130K – because to them, it’s only a few extra bucks on their monthly mortgage payment.
Now for apartments, the net operating income (NOI) divided by the capitalization rate equals purchase price or value.
That’s it – that’s how it works.
So, if a 100 unit apartment building is being sold at a market cap rate of 10 (10%) for $4 million – then the NOI MUST be $400,000.
For apartments it is all about the numbers and not based on what the owner thinks it’s worth.
#4 – Equity is built by adding value
Because apartments are valued based on income, you can raise the value of your apartment and create equity simply by raising rents.
Consider this scenario:
You bought a $4 million, 100 unit complex mentioned above.
Now, after the first year, you raise rents by $10 per month for each unit.
How much value have you just added?
$10 per unit X 100 units = $1,000 per month or $12,000 per year.
$12k doesn’t sound like a lot, but wait there’s more…
If we use the market cap rate of 10, that means you just added $120,000 ($12,000/.10) of value to your apartment complex.
Pretty cool Right??
Kind of makes your mouth water doesn’t it…
This is hardly the whole list of reasons why apartments make fantastic investments – yet you’ve certainly gotten the idea by now, haven’t you?
To learn more about the specifics of owning these money-making machines and all the extra benefits as well as the security they can provide, please get in touch with us.
Ask me anything you’d like – we’re here to open up the world of apartment investing to you and provide you with every opportunity for profit, security and financial freedom!