Multifamily Mindset | Investing Into Apartment Complexes

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When people think about real estate investing, the first thing that usually comes to mind is their own home. Your home is considered an investment property. But real estate investors have a lot more options when it comes to real estate investing.

This flexibility is one of the things that appeal to real estate investors. There are many ways to get into real estate investing, and that is part of the reason why it has become such a popular investment vehicle over the years.

Real estate is an asset class that can help diversify your portfolio. You can become a landlord of a rental property. Alternatively, you can buy an undervalued real estate asset and then flip it and sell for a profit. [1]

Investors even have the option to get into real estate investment trusts or REITs, which allows them to get indirect real estate exposure without having to own and operate properties themselves.

Here we will discuss some of the most common ways to invest in real estate, as well as why investors should consider investing in a multifamily property.

Real Estate Investing

Real estate investing is a type of investment wherein a property is purchased as an investment instead of being used as a primary residence. A real estate investment property is any land, infrastructure, or building that is immovable but transferable. [2]

Real estate investing is generally considered safer than equities and bonds because of its low volatility. This can give investors competitive risk-adjusted returns.

There are different classifications of real estate properties. This includes residential real estate, commercial real estate, industrial real estate, retail space, land, fix and flip properties, and mixed-use properties. [2]

A residential property is a home: a single family unit, duplex, triplex, or apartment building that can be used for residential purposes. Fix and flip properties are residential properties that are bought and fixed up to be resold at a higher price. These are typically properties that are poorly maintained and can be purchased at a low price. Fix and flip properties is an alternative approach to renting out a residential property. [2]

Commercial real estate investing involves purchasing office buildings or properties that can be rented out and used by different businesses.

Industrial real estate refers to large scale properties used for factories, warehouses, distribution centers, and manufacturing units. [2]

Retail spaces are real estate properties used as shopping malls, retail stores, showrooms, restaurants, etc. There can be multiple units in one location.

Any vacant land can be purchased by real estate investors for a variety of purposes like farming or ranching.

Finally, mixed-use properties are high-end properties that can constitute the other types mentioned above. These properties can ensure diversification and minimize the risk of project failure.

Benefits of Real Estate Investing

Regardless of the type of property they are investing in, real estate owners can enjoy plenty of benefits from real estate investing. A property investment can improve your investment portfolio especially if you somehow manage to secure one of the larger multifamily properties.

Rental real estate, for example, is a tangible asset that provides a consistent cash flow. Apartment buildings and other multi family properties can be a good source of income if you are trying to raise money and build your wealth. [1]

Aside from stable rental income, the rent even pays off the mortgage. Residential and commercial real estate are the only properties that can generate income to pay off the interest on their mortgage. If you want passive income, rental properties can pay for themselves. [2]

Real estate investments are also good for diversification. Because of their low correlation with other asset classes, these properties are unaffected when other investments plummet. When stocks are down, real estate is often up. So if you add real estate to your investment portfolio, you can lower its volatility. You can even get a higher return per unit of risk. [1]

Real estate also has inflation-hedging capabilities. This asset class is not adversely affected by inflation. This means as economies expand, its value and income increase because the demand for real estate drives rents higher. This translates into higher capital values. Your real estate business can pass some of the inflationary pressure onto its tenants in order to maintain the purchasing power of capital. It also incorporates a bit of inflationary pressure through capital appreciation. [1]

Leverage is another advantage of real estate investing. With the exception of REITs, real estate investments give investors leverage. This means using debt to finance a larger purchase than you would normally be able to purchase.

Real estate investors also enjoy tax benefits and tax exemptions on rental income up to a certain limit. Even the long term tax rates of these investments are low. [2]

Real estate investing is a long term investment strategy that gives you financial security because you get to possess a physical asset.

Of course, no investment is perfect, so it is also worth mentioning some of real estate’s drawbacks. While it is definitely a profitable investment, it does have its limitations. For example, if you go for the rental approach, you will find that apartment buildings are high maintenance. You have to have a bit of experience when it comes to investment property management. As an owner of a rental property, you will have to play the role of landlord. [2]

You also have to deal with tenants and their high maintenance requests, on top of maintaining the property itself. You have to deal with emergencies and repairs, not to mention collect rent yourself.

Some investors hire a property management company to deal with the day to day needs of the apartment building, condominium, or multifamily property. The rental income can usually offset these expenses.

Another potential drawback is the fact that these properties are costly. Buying and selling them is a costly affair. There are also registry charges, legal expenses, etc. The cost of investment can be quite high. In fact, the most profitable multi family properties are often difficult for a lone investor to acquire.

Finally, real estate investments are less liquid in nature. Unlike stocks and other investment types, real estate cannot be bought and sold easily. If you are looking for short term profits, this is not the investment type for you.

Types of Real Estate Investments

When investing in a rental property, investors can go for single family homes or multi family real estate. Either way, investors have to serve as the landlord unless they hire property managers to handle it for them.

Rental properties are profitable because they generate a consistent cash flow. However, they are also the most hands-on type of real estate investment. As a landlord, you have to deal with things like property taxes, insurance, mortgage, property maintenance requests, repairs, and emergencies. Not to mention that you also have to look for tenants.

With a multifamily property investment, such as an apartment building, you don’t have to worry much about vacancies. Even if one or two units become vacant, you still get rental income from the remaining units that are occupied. With single family homes, your cash flow is interrupted if the tenants decide to move out. [1]

Despite its challenges, a lot of investors go for rental real estate properties because they are a good source of passive income. You can just generate income by collecting rent. How much rent you can charge depends on location, amenities, and other factors. Charging too much rent will chase tenants away. Charging too little will not give you enough to cover expenses.

Investors can also generate profit through property appreciation. If the property appreciates in value, it can be sold at a higher price. You can then make your next investment. However, there are no guarantees that your real estate property will appreciate in value. [1]

Another way to invest in real estate is by flipping houses. This involves purchasing properties that are in need of repairs but have potential to be sold for a higher price once it has been updated. After “flipping” the house, you can then sell the same building for a higher price than when you first got it.

Flippers only hold onto these properties for a short period of time–often no more than four months–and then quickly reselling them for a profit. Because of the way they operate, flippers do not have to manage the property or act as a landlord.

Some flippers simply hold and resell properties by purchasing real estate in a rapidly rising market, holding it for just a few months, and then selling at a profit.

The risky part is being unable to sell the property for a price that turns a profit. Done correctly, it can be one of the most lucrative investment opportunities in real estate.

REITs are another type of real estate investment that you can add to your investment portfolio. A REIT uses investors’ money to purchase, operate, and sell income-producing real estate. Similar to stocks and exchange-traded funds, REITs are bought and sold on major exchanges. An entity is created and it must pay out 90% of its taxable profits to shareholders, to qualify as a REIT. This way, REITs do not pay corporate income tax. [1]

Unlike other real estate investment types, REITs are highly liquid because they are more like dividend-paying stocks rather than traditional real estate properties.

Commercial Real Estate Investing

Commercial real estate investing refers to properties that are exclusively used for business purposes. Instead of a living space, a CRE is leased to businesses that want to use it for income generation. Commercial real estate investing is broad enough to include single storefronts, office spaces, hotels, resorts, restaurants, healthcare facilities, and much larger shopping centers. [3]

The business plan for a commercial real estate property is to generate rental income from its tenants. Much like residential real estate, it can also earn from capital appreciation.

However, commercial real estate typically requires larger amounts of capital, with some properties easily costing more than a million dollars.

Some investors who want to indirectly invest in commercial real estate go for REITs instead of purchasing the property themselves. [3]

Multifamily Real Estate Investing

A multi family real estate property is a building with more than one housing unit. This could be a duplex, triplex, apartment complex, condominium, townhomes, or any other property where more than one family can live in. [4]

Out of all the potential investments in real estate, multifamily real estate investing is one of the most profitable ones. Property management is not even a huge obstacle, because with a good location, some great amenities, and multiple units, you can attract a lot of tenants and generate additional income to hire a property manager.

With a multifamily property, you don’t need to worry about vacancy rates. You can boost your income by investing in an apartment building and generating more rental income on a monthly basis.

One benefit of owning multi family real estate that some investors don’t realize is that you can actually live in one of these units. You can live in your own multifamily property. [4]

Whether you decide to live in your property investment or not, this is still an amazing tool for building wealth.

Large multifamily properties are hard to acquire, however, and you have to raise capital before you can add these into your real estate portfolio. Therefore choosing the right investment property is essential.

Since this is a huge investment, you have to do a lot of research before you select from the array of available apartment complexes that are available. You have to know about the market value of these apartment buildings before you choose one. But at the same time, this is a highly competitive market. [4]

Real estate education is important if your goal is to eventually purchase large apartment complexes. Conduct your due diligence and ask other real estate investors about existing multifamily properties in the area. Compare purchase prices, market value, rental estimates, etc.

Larger multifamily properties may be harder to acquire, but they are also the most profitable. Well-located apartment buildings, for example, are always in high demand so you will never run out of tenants. [4]

Check the basics: location, total number of units, and the potential income of any multi family property you come across. You also have to consider the costs of purchasing and maintaining such an investment property.

Finally, you also have to check who is selling the property in the first place. There are owner occupied properties and bank-owned properties. Investors should know the motivation behind selling the place.

It is challenging to acquire a large multifamily property, but the benefits are undeniable. A multifamily property provides a safe, reliable, and passive income through monthly rent. And compared to single family homes, they also generate a bigger cash flow. It is easy to see why investors want to own multifamily residential buildings. You can generate additional income from just one investment and earn a significant amount from rent payments. They are also known for their slow and steady appreciation. [4]

If you choose to get into multifamily real estate investing, you will also have a larger pool of tenants. Unlike single family rentals that lose income when the home becomes vacant, multifamily properties have no such problem. This is why multifamily real estate is generally valued higher than single family rentals.

Another advantage that it has over single family homes is that its income can justify hiring a property management company. It does cost more to repair and maintain the units because there are more units in the property to maintain, but it generates enough income to cover the property management fees as well as the maintenance fees. [4]

Multifamily real estate also enjoys scalability. Instead of purchasing multiple properties one at a time and securing separate loans for each, you can acquire multiple properties within a single building. This makes multifamily real estate perfect for those who want to grow their real estate portfolio.

Multifamily Syndication for Real Estate Investors

For investors who want to try investing in multifamily properties but do not want to worry about property management, multifamily syndication is the best investment strategy.

Multifamily syndication is a real estate deal that involves having multiple investors combine their resources and funds to purchase a single property. This can be done with single family homes, but multifamily properties are the most popular investment properties for syndication. [5]

In a syndication deal, a sponsor locates the deal, coordinates the funding, and finds passive investors to participate in it. Investors pool their resources to provide most of the capital needed to purchase the multifamily real estate.

Once the syndication deal is in place, the sponsor will also manage the property. Multifamily syndication solves two of the biggest problems with multifamily real estate investing: the large barrier to entry and the property management.

Since multiple investors are funding the multifamily property, you don’t have to secure a huge capital just to participate in multifamily investing. You also don’t need to provide property management fees or look for a property management company since the sponsor is in charge of it. The sponsor, also known as the syndicator, may look for a property manager or choose to take care of property management themselves. Regardless, passive investors do not have to deal with it.

Investors provide the majority of the funds in exchange for equity in the real estate and the monthly cash flow from rental revenue. [5]

To form a syndication deal, a limited liability company (LLC) or limited partnership (LP) is formed. Limited partners are the passive investors while the sponsor serves as the general partner or manager. [5]

The payment of rental income from the multifamily property depends on how long the investment takes to mature. Some syndications are completed within 6 to 12 months, while others take up to 10 years. All of the participating investors get a portion of the earnings.

You can enjoy all of the benefits of multifamily real estate investing without the stress of looking for an investment property all by yourself and supplying all of the capital. You also don’t need to become a landlord.

If you want to try multifamily investing but do not want to purchase an entire apartment building all on your own, try multifamily syndication.

Benefits of Multifamily Syndication

Multifamily syndication is one of the most cost-effective ways to invest in real estate. Some investment opportunities cost as little as $50,000.

Most investors cannot afford to purchase an apartment building on their own, and multifamily syndication solves that problem by having multiple investors participate. They acquire a single multifamily property and have a syndicator take care of it for them. Apartment investing has never been so accessible. [5]

Investors also enjoy all the tax benefits that come with it. Investing in multifamily syndication means you are investing in an entity that doesn’t benefit from real estate tax savings. This means the investor is entitled to a portion of the depreciation and other benefits.

It’s also very easy to benefit from multifamily syndication. After the initial investment, you no longer have any other responsibilities. You can manage your other investments and take care of your business while the apartment building generates income for you. [5]

Investors still profit from the increase in equity value even if the building is not fully occupied. Equity growth isn’t guaranteed, however, because all projects can be affected by local factors that are unpredictable.

Work with BAM Capital for Multifamily Syndication

You can engage in multifamily investing without the headache of becoming a landlord and managing tenants. Work with BAM Capital.

BAM Capital is an Indianapolis-based syndicator with a strong Midwest focus, prioritizing multifamily real estate properties that are Class A, A-, and B++. This syndicator uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication. [6]

BAM Capital mitigates investor risk and uses a vertical integration strategy to create forced appreciation. They have a consistent track record of providing a safe and passive investment for their investors.

BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Their vertical integration strategy has worked wonders for the company so far. In fact, BAM Capital currently has $700 million AUM and 5,000 units. [6]

Accredited investors can schedule a call with BAM Capital and invest today.

 

 

BAM Multifamily Growth & Income Fund III

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
  • Vertically integrated company
    In-house property management and construction allow for predictable cost reduction and value add.

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