The Basics of Multifamily and Apartment Real Estate Investing
Investing in multi-unit properties can bring you more income and better investment security than single-family homes, but apartment real estate is a new animal for investors who have only purchased single-unit dwellings so far. They come with the advantage of continuous income if they are managed correctly, but they also come with a greater overhead. The first step to being successful when you transition from one investment type to the other is ensuring you have enough working capital to manage costs until you reach a return on your investment.
Among the increased outgoing costs you will need to absorb are marketing, management, renovation and upkeep, and custodial or groundskeeping. Depending on the utilities you bundle into the rent, you could also incur costs above those. If you work with a property management company, you can designate budgets for the management of the property from its income and let them do the work, but the property has to be generating income first. If not, you’re paying the management company to fill it for you, and you won’t have any income to pay those costs until you get enough tenants to break even.
If you’re not taking over profitable and filled apartment real estate, you need to be sure your estimate of the purchase cost and extra expenses includes these considerations. You’ll also need to figure out what percentage of the building needs to be filled to cover your loans and management costs, whether you hire someone to handle the property or you manage it yourself by hiring staff and setting up an office.
Most investors find property management to be a better deal because it lets them focus on growing their investment portfolios instead of worrying about the day-to-day needs of tenants. If you opt for this, you will need to do quality control to ensure the property management company you work with delivers the quality of service you expect to your tenants. If they become lax in their duties, that could hurt your bottom line by keeping potential tenants from wanting to rent in your buildings.
Finding your way into apartment real estate doesn’t have to be difficult, but it will be if you only set aside the money you need for a down payment on your property. Instead, take the time to calculate how much it will cost to run the property for a year, and go in with a budget that lets you make the building profitable instead of one that requires it to start that way.