Is Owning an Apartment Complex Profitable?
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If you are looking for time-tested ways to build wealth, look no further than multifamily real estate investing. Investing in a multifamily property such as an apartment building comes with an amazing array of benefits, which we will discuss here today.
However, investors should know that owning an apartment complex comes with several challenges that you cannot simply overlook. These challenges should be taken into consideration when deciding on whether or not this investment vehicle is a good fit for you.
Owning an apartment complex comes with some major pros and cons. With the right property and right business strategy, this can be an extremely profitable endeavor—especially for accredited investors and high net worth individuals (HNWIs).
With that in mind, no investment is perfect. When it comes to multifamily investing, you need to be prepared to put in the work. Part of being an apartment owner is playing the role of landlord and shouldering all the responsibilities that come with that title. It is your responsibility to put in the work in order to make sure the property actually turns a profit.
Is Owning an Apartment Complex Profitable?
Apartment complexes and multifamily properties in general are considered profitable because of their strong and reliable cash flow. It is especially more profitable than single family rentals because they have multiple units that can generate rental income. These properties are designed to maximize profit from renters with the numerous units available. [1]
An apartment building is able to generate more rental income thanks to the higher number of units. It is also more reliable than a single-family real estate property because vacancies do not stop your cash flow. Unlike a single-family property that stops generating profit when the tenant leaves, an apartment complex will have several tenants producing rental income continuously even if one or two units become vacant for a while.
There is also less competition compared to single family rental properties because you will only have to compete against fellow investors rather than competing with residential buyers. If you are willing to put in the work, an apartment building can be highly profitable and a worthwhile addition to your investment portfolio.
Let’s discuss a hypothetical example. Based on a Realtor.com report, the average rent in the US is $1,827 per month. This applies for both single and multifamily rental properties. If you have a monthly cash flow of $150 per unit (after expenses such as maintenance, repairs, and mortgage), and your apartment building has 50 units, your net operating income would amount to $7,500 per month compared to $150 for a single family rental. [1]
However, the profitability of real estate properties may be influenced by several factors, and this is what investors need to keep in mind. Your profits will be affected by the size of the building, the number of apartments per floor, its proximity to public transportation and local businesses, the available amenities, the costs of property management and maintenance, the tenant screening process, and the type of neighborhood the property is located in. [1]
The location of the apartment complex plays a crucial role in its profitability. Properties situated in desirable neighborhoods with good access to amenities, schools, employment centers, and transportation tend to attract higher rental rates and tenant demand, generally speaking.
The good news for investors is that there is typically a high demand for housing since people always need a place to live. But market demand can still play a role in an apartment’s profitability. A strong demand for rentals can lead to higher occupancy rates and potentially higher rental income.
Economic conditions also play a role. Economic factors such as job growth, population trends, and economic stability in the area can influence the demand for rental properties and, subsequently, your profitability.
Before investing in an apartment complex or any multifamily real estate property, it’s essential to conduct thorough research, create a comprehensive business plan, and possibly consult with real estate professionals or financial advisors to evaluate the potential profitability based on your specific financial goals and the local market conditions.
What is it Like to Own an Apartment Complex?
Apartment ownership comes with several benefits: the strong and reliable cash flow is just one of them. Some types of investments like stocks do not compare to the amount of cash generated by a well-located and well-managed apartment complex.
Apartment complex ownership also gives investors leverage. Borrowers are able to put down around 20% to 305% of the sale price while financing the rest over a 25 to 30-year amortization period, which is a benefit you don’t get from stocks, bonds, mutual funds, and other investment opportunities. [2]
Multifamily real estate investing also comes with several tax benefits. Real estate investors can enjoy various tax deductions, including mortgage interest, property taxes, utility costs, depreciation, and certain operational expenses.
There’s also what is called economies of scale, which means managing multiple units within a single property can lead to cost savings. For instance, maintenance, repairs, and property management expenses can be spread out over several units, reducing the overall cost per unit.
Real estate investing also gives you several other benefits like appreciation potential, diversification, adaptability, and long term wealth building. A multifamily property can even serve as a hedge against inflation. Rental income tends to increase with inflation, providing a natural hedge against rising costs over time.
However, owning a large multifamily property is not for the faint of heart. Multifamily property ownership comes with several challenges from unpredictable local market changes to tenant-related problems. [2]
It’s just as important to talk about these challenges when deciding on a real estate investment. Owning an apartment complex gives you a strong, predictable cash flow, but it also comes with high maintenance costs and potential legal liabilities.
There are local market factors to consider. For example, even a neighborhood that seems to be gentrifying may see an unexpected increase in crime and poverty, leading to a significant decline in your investment’s value. [2]
Property owners may also have to deal with liabilities for crimes and accidents that occur on the property. This is a non-existent risk for investments like stocks, bonds, and even real estate investment trusts (REITs).
Another challenge to consider is the fact that real estate is not as liquid as stocks and bonds. An investor cannot just click a few buttons and sell their property unlike with stocks and bonds. A multifamily property can take several months to sell.
Multifamily real estate investing also requires a significant time investment. Even the process of selecting, financing, and purchasing an apartment community can take months. [2]
Becoming a landlord comes with a lot of responsibilities. Many investors are too busy to handle an entire apartment complex by themselves. As a landlord, you will have to worry about rent collection, managing tenants, dealing with emergencies, etc. It is easy to see how being a landlord is not for everyone.
Additionally, tenants will cause most of your headaches. Some people fail to pay their rent, cause significant property damage, or leave unexpectedly.
The good news is that multifamily properties generate enough profit that it becomes more feasible to hire a professional property management company to help you handle all of these responsibilities. Taking this approach can free up your time and ensure the property is well-maintained and managed effectively. [2]
Even then, you need to hire property managers, maintenance people, and leasing staff. You will still need to spend a certain amount of time supervising the property management company to make sure your investment property remains profitable.
But there is an even easier option for accredited investors and HNWIs. It’s called multifamily syndication.
Instead of Hiring a Property Management Company for Your Apartment Buildings: Work with BAM Capital
Apartment owners usually have a tough time juggling their real estate responsibilities with their other priorities and investments. Without a property management company, apartment investing can be challenging. But there is a way for investors to earn monthly rent without all the headaches associated with being a landlord. After all, not many wealthy people have an infrastructure of builders, property managers, and real estate acquisition specialists backing them up.
Through multifamily syndication, HNW investors can enjoy all the benefits of multifamily investments without spending all that time and effort on running the apartment complex.
A syndication deal in real estate involves multiple investors pooling their funds together to purchase a single real estate property. This solves one of the biggest problems of apartment investing: the fact that there’s a large barrier to entry. Normally, purchasing an apartment building all by yourself would require a large down payment. There is a larger barrier to entry for investors because apartment buildings tend to be more expensive. [3]
But because syndication deals involve several investors, it is easier to purchase even a multifamily property without having to spend a large capital. Even accredited investors may think twice about dropping that much money on a real estate property. A syndication deal means multiple investors are participating, so there are several people sharing the risk.
Multifamily syndication requires less upfront capital from each participating entity. The costs are assessed and distributed fairly among the group. [4]
Syndication deals are arranged by syndicators who serve as the general partner (GP). They look for a suitable investment property, put the deal together, and look for investors who will provide most of the capital needed to purchase the property. [3]
In return for their investment, investors gain a share of the monthly cash flow, and—depending on the deal structure—a share of the appreciation upon resale.
While syndication deals can be arranged for any type of real estate, multifamily syndication is popular because of the benefits mentioned above. Investors get to enjoy a strong and stable cash flow without having to spend as much money.
A syndication deal also solves the problem of property management for HNWIs. You no longer have to become a landlord when you participate in a syndication deal because the syndicator will also take care of it. This makes multifamily syndication a true passive investment and a great source of passive income.
True passive income is incredibly rare, but you can get that major economic advantage while saving time and energy by choosing the right syndication deal. This could potentially help you build your wealth while diversifying your investment portfolio.
Syndication deals are often exclusive to accredited investors and HNWIs, and so they get to enjoy an alternative investment that is outside of the typical Wall Street options. [3]
Although it is similar to REITs in that they both allow real estate investors to avoid property management, real estate syndication allows investors to choose which real estate property to invest in. On the other hand, investors have no control over which real estate properties are selected by REITs.
Every syndication deal is different. It is therefore important to work with a syndicator you trust. Choose to invest with BAM Capital for multifamily syndication.
Working with BAM Capital is ideal for accredited investors because this Indianapolis-based syndicator is already well-established and has a proven track record when it comes to arranging syndication deals. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [5]
This is because BAM Capital is an industry leader with a strong Midwest focus, prioritizing properties that are Class A, A-, and B++. They go for high quality multifamily properties that have proven upside potential and in-place cash flow. They then use their award-winning strategy to mitigate investor risk while creating forced appreciation.
BAM Capital is also vertically integrated, meaning they can guide you through every step of the syndication process: from acquiring and purchasing the multifamily property to renovating and managing it. [5]
Companies do not just become industry leaders over night. Lean into what you know: running your business and focusing on your other investments. Let BAM Capital handle the syndication deal for you.
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.
For HNWIs who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
