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How Much Do Apartment Complexes Cost?

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For investors who are looking for an additional source of income, buying an apartment complex may be a good idea. Residential properties with five or more units tend to bring in a strong and consistent cash flow, making it a time-tested way of building wealth.

High net worth individuals (HNWIs) may take interest in this investment opportunity because multifamily investing comes with several benefits, which we will enumerate later on. However, it is important to keep in mind that owning and managing an apartment complex is easier said than done. It is also a significant investment on your part.

Investors who learn how to buy an apartment complex can potentially create an incredible source of monthly income.  But before you can get into multifamily real estate investing, you first need to have an idea on how much it’s going to cost you to buy an apartment complex.

How Much Does It Cost to Buy an Apartment Complex?

The first step is deciding whether or not buying an apartment complex is actually the right move for you. As you learn how to evaluate apartment buildings for your investment strategy, you may realize that this is far more complex than it initially appears. You should only pursue this if it is the right fit for your real estate investing goals.

There is no straightforward answer regarding how much an apartment complex will cost, because it will depend on a number of factors. For example, each city and state will vary when it comes to real estate costs. [1]

The cost of an apartment building will also depend on its quality as well as the quality of the neighborhood it is in. Apartment complexes can be classified according to a rating scale of A to D. You have to decide what type of apartment complex you are looking for.

A Class A apartment building is less than 10 years old. These are considered luxury rentals due to their quality, condition, and location. They can also be older, renovated buildings with plenty of amenities such as tennis courts, fitness centers, pools, and clubhouses. High-rise buildings may also be considered Class A. [1]

Class B apartments are slightly more dated, but still well-maintained. They may be up to 20 years old, but they still have good amenities and facilities. These properties have the most potential to be converted into Class A properties with several changes.

Class C apartment complexes are up to 30 years old. They have limited or no amenities. This may also refer to apartment buildings that are not ideally located, meaning they are far from transportation, hospitals, schools, restaurants, etc. These properties may be in need of repair and renovation. [1]

Finally, Class D apartments are typically over 30 years old with no amenities. These are low-income buildings in less than ideal locations. Most apartment buildings that are categorized as Class D require plenty of repairs.

With that in mind, first-time apartment complex investors should go for either Class B or Class C properties because they are more affordable and trade at a higher cap rate. These properties are also associated with lower risk due to their lower acquisition cost.

Additionally, these lower class properties are generally easier to manage, but you may have to spend some money on repairs.

Some investors consider apartment building construction: instead of purchasing an existing apartment complex, they build an apartment complex from scratch. The cost to build an apartment complex should give you a general idea of how much you are going to spend on multifamily real estate investing.

In 2020, the average apartment construction cost in the US was around $22 million. The cost of an apartment building per square foot is around $398. Estimates also put apartment building costs at $64,500 to $86,000 per unit in 2020 for mid-rise buildings. [2]

That said, these figures will still vary depending on the building type, the location, the construction costs, the number of units, the number of square feet, etc. Even with these figures, the costs from one apartment complex to another can still be wildly different.

Work with a general contractor and project manager to properly estimate the building costs of an apartment complex, including labor costs, soft costs, average maintenance cost, etc. Apartment complex construction is a massive undertaking. You need to work with an experienced builder in the construction industry if you want to take this avenue.

How to Buy an Apartment Building

Ultimately, you will have to work within your budget when buying an apartment building. Set your budget and figure out what type of apartment complex you want to go for. Remember that a lot of apartment complexes will require a down payment of $100,000 or more. You need to have that type of cash on hand. [3]

Once you have prepared your budget, you can try to get pre-approved for financing. This is one of the most important steps you will have to take before you can acquire an apartment complex. Your lender will ask for detailed financials, so you need to be prepared with the paperwork. Get in touch with at least 3 lenders to make sure you are getting the best possible rate. If possible, try to get pre-approved by at least 2 so you can keep your options open. [3]

Start looking for apartment complexes that fit your budget and make offers. Use the internet to find buildings that would work for you in terms of location, rent prices, amenities, etc.

The next step is to conduct inspections. This is necessary since purchasing an apartment building is no small investment. You need to be thorough. Ask questions about the property and check each unit. Look into the electric system, HVAC, plumbing, etc. Searching for reviews online may also help you make a decision. [3]

Once you have chosen your ideal apartment complex, it’s time to finalize the deal and financing. Go to your lenders with your actual deal and finalize the financing. The lender will likely require an appraisal. If the appraisal report comes back in good shape and there are no issues with the title, you can close on the deal.

Buying Outright vs. Investing with a Multifamily Syndication Company

Believe it or not, purchasing your apartment complex is one of the easiest parts of this process. Multifamily real estate investing in general is very time-consuming and you may spend months or even years trying to stabilize your investment.

There are many pros and cons to owning a multifamily property. While an apartment complex is definitely a great asset to own, it is not necessarily the best investment strategy for everyone.

In order to make a rental property profitable, especially one as big as an apartment complex, investors need to get really involved with their investment. They need to put in a lot of time and work into the property. Unfortunately, not all investors have the time to do this. Not everyone wants to be a landlord either.

If you decide to buy an apartment complex outright, you will have to run it yourself. You have to be prepared for larger investment costs because these properties are large and expensive. They are costlier than your single family homes and smaller multifamily properties. A large apartment complex is a huge commitment. It goes without saying that you need a high risk tolerance in order to succeed here.

The good news is that these properties can also generate a strong cash flow through monthly rent. Investors do not have to worry as much about vacancies because there are plenty of units to generate income on a regular basis. Even if one or two units become vacant, you still have the rest to get income from.

Additionally, if your apartment is well-located and well-maintained, any vacant slots will be filled immediately. Investors can even charge extra for amenities to generate some extra income. You may charge for laundry facilities, parking spaces, vending machines, etc. [4]

Because of economies of scale, maintenance costs are also lower per unit. The cost for a new roof will be spread over all the units in the building, for example.

You also get to enjoy several tax benefits when you own an apartment complex. There are substantial deductions via mortgage interest and depreciation. Even expenses like utility and travel costs can be deducted. [4]

Potential Drawbacks of Owning an Apartment Complex

Owning an apartment complex has some notable drawbacks that you should keep in mind before deciding on this investment strategy. This is a challenging investment if you don’t know what you are doing.

If you are busy running a business or managing several other investments, you should know that managing an apartment complex is a huge time investment. You have to work hard just to keep it running. Taking on the role of landlord, you have to be responsible for tenant issues, property management, repairs, renovations, upgrades, and emergencies. [5]

This is why a lot of investors opt to hire a property management company to take care of the day-to-day responsibilities of running an apartment. While this is an additional expense, the apartment’s strong cash flow usually justifies the extra investment. Of course you still have to take some time to supervise the property management company and make sure the apartment complex remains profitable. It’s not a completely hands-off approach.

Another potential challenge for multifamily investors is the fact that repairs and maintenance tend to get pricey. It is a large property, after all. Replacing broken windows, fixing faulty light bulbs, etc.—all of these come at your expense as the landlord. You can use insurance to cover the larger items, but everything else will come from your pocket.

Investors have to know that real estate, especially multifamily real estate, is not particularly liquid. It is not easy to sell an apartment building if you need to get your money back quickly. Unlike stocks and bonds, your money will be tied to the building until you can sell it, and that process could take months. You might not even get the price you want. [5]

The good news is that accredited investors and HNWIs have another option that eliminates a lot of these obstacles. Real estate syndication makes it easier for investors to participate in multifamily investing.

Benefits of Real Estate Syndication

Before you start a construction project from scratch, you should learn about real estate syndication first. This is an incredible alternative for those who want to get into apartment complex investing, but don’t want to spend all that time running it.

A syndication deal involves multiple investors pooling their resources together to purchase a single property. This makes it a group investment. This setup allows investors to buy larger properties that they normally wouldn’t be able to purchase on their own. Multifamily syndications are legally formed as LLCs (Limited Liability Companies) or LPs (Limited Partnerships).

A syndicator puts the deal together and acts as the General Partner (GP) for the deal. They will find a suitable apartment complex or multifamily real estate property, put the deal together, secure the financing, and then find investors who will provide most of the capital needed to purchase it.

Take note that real estate syndication can be done with many different real estate investment properties. But because of the benefits listed above, multifamily properties are the most popular for syndication deals. Investors will serve as the Limited Partners (LP) in the syndication deal.

Even though HNWIs can afford to buy a $3 million apartment complex on their own, this isn’t always something they want to do. [5]

Through syndication, you can enjoy a lot of the benefits of owning an apartment complex, but without the headaches of becoming a landlord. A syndication deal makes you a passive investor. You earn money from the monthly cash flow and the equity upon resale, depending on the deal structure.

Real estate syndication is a great strategy because multifamily properties are normally too expensive and too difficult to manage. You can let the syndicator handle everything, including property management, which means you can just sit back, relax, and enjoy your passive income stream without lifting a finger. Focus on more important tasks like spending time with your family or running your business.

From locating the ideal syndication property, to making sure it is profitable, the syndicator will handle it all. [5]

Multifamily syndication offers a low risk, high reward alternative to simply buying an apartment complex by yourself. Even the risks are relatively low because you only have to be liable for losses that are equivalent to the amount you invested. Even if the investment is not profitable, you do not have to bear the load of all the losses—unlike if you owned the whole place and had to worry about the entire property. [5]

If you work with a high quality multifamily syndicator like BAM Capital, your investment will be in safe hands. Syndicators like BAM Capital have plenty of experience when it comes to real estate investing.

BAM Capital in particular can handle everything from start to finish, so you can just relax and let your money do all the work. BAM Capital understands local market conditions as well as other important factors that affect syndication deals. They do all the work for accredited investors, from locating the best apartment complexes in the area, to performing due diligence.

BAM Capital even ensures that their investors are informed every step of the way about developments regarding their syndication deal.

Why Choose BAM Capital for Apartment Investing

BAM Capital is a real estate syndicator with a strong Midwest focus. It prioritizes Class B++, A-, and A multifamily assets with in-place cash flow and proven upside potential. The BAM Capital strategy mitigates investor risk and allows the fund to target a consistent monthly cash flow. [6]

BAM Capital also has the edge over other syndicators because it is vertically integrated. Vertical integration means that the company has taken direct ownership of the various stages of its production instead of relying on external contractors and suppliers. This allows companies to streamline their operations.

In real estate, a vertically integrated company like BAM Capital can handle all steps of the investment life cycle. BAM Capital, for example, handles everything from purchasing to remodeling to management, yielding higher returns for their investors.

Being vertically integrated also means that BAM Capital has unmatched expertise in its field.

BAM Capital operates under The BAM Companies. This means that they can set up real estate syndication deals and also handle construction and renovation. Because they have their own builders, BAM Capital is able to implement repairs that increase property value with the help of BAM Construction. [6]

BAM Construction was introduced in 2015, making it the latest addition to The BAM Companies. BAM Construction handles upgrades and updates for features and amenities. BAM Construction has multiple qualified construction and renovation specialists on board. Simply put, they will work with you from start to finish. [6]

The BAM Companies even has its own property management arm, in the form of BAM Management. BAM Management ensures that everything is handled perfectly.

Work with BAM Capital to enjoy its award-winning multifamily investment strategy that is designed to help you every step of the way. BAM Capital will negotiate the purchasing and financing of high quality multifamily properties on your behalf, creating forced appreciation so you can enjoy greater returns. [6]

BAM Capital’s consistent track record speaks for itself. In fact, it now has $700 million + AUM and 5,000 +  units.

Keep in mind that no investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

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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The contents on this site are for informational and entertainment purposes only and do not constitute financial, investment, or legal advice. BAM Capital cannot guarantee that the information shared on this post or page is appropriate for you and your financial situation. By using this site, you agree to hold BAM Capital and any and all entities related to the writing & publishing including BAM Capital’s parent company harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site. Always consult your investment advisor, CPA, and other professionals before making an investment. BAM Capital is excited to help you grow your investment assets. Please contact us to see how we can help you.  

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