Real estate has long been a popular way for people to invest their money and build wealth. There are several benefits of investing in real estate, such as stable cash flow, tax advantages and diversification.
There are also a number of different ways you can invest in real estate. When many people think of real estate investing, they think about buying a home and either renting it out of fixing and flipping it. However, it is often the purchasing and renting of apartments and apartment complexes that can be one of the best ways to build wealth in real estate.
Whether you are looking at downtown Dallas high rise apartments or a small multi-family unit in Phoenix, this article is going to go over a few reasons why apartments are a great wealth builder.
1. They Are Relatively Stable
The first reason that apartments are a great wealth builder is because of how stable they are. If you buy a home and rent it out, the success of your investment and your income every month relies on one person. If they cannot pay, or are late, it affects your financial situation in a major way as you are solely reliant on them.
On the other hand, if you own an apartment building and rent out all of the units, you will no longer rely on a single person. If you rent out 10 units and that same one individual can’t make their payments, you are still receiving a steady income from the other 9 individuals or families.
Also, vacancies are much less of an issue with apartments. Even if you have a few vacancies here and there, you are still making a relatively stable amount in terms of income. But with a home, if it is vacant, you are receiving no income and have to cover the costs of the home yourself.
2. The Demand Will Always Be There
People will always need a place to live. While some are willing to put the time and money into buying a home, there is no doubting that renting is easier. This is especially true if you’re not sure where you will be working or wanting to live in the coming years.
It is much quicker to rent a place than it is to buy it, and many people like the freedom that renting affords them. Not only that, but all you generally need is a security deposit, a proof of income and decent credit in order to qualify. As a result, there will always be people looking to rent apartments, no matter what the market or industry is like.
3. Several Ways to Add More Income-Generation
Raising your income and building a more valuable investment is generally easier with apartments than it is with homes. There are several ways you can add more value to an apartment complex. This could be adding more parking spaces, building an on-site gym, getting a security guard or sprucing up common areas.
All of these are singular changes, but will have an impact on everyone who is renting from you. Even small changes can make a huge difference when they apply to everyone. For example, if you build a gym or hire security, you could potentially charge another $10 or $25 a month for rent due to these extra amenities.
While this might not be a lot if you only have a couple of units, if you have 100, this extra $10 or $25 a month could equate to thousands of dollars every year. The point is, there are dozens of different ways to make small changes to your apartments that can lead to greater income generation and a more valuable space over time.
4. The Income Dictates the Value
Speaking of income, the amount you make from an apartment building or complex directly influences the value of the building. The same cannot be said for a home. When you want to buy a new home to fix and rent out, you are not only competing with other investors, but also those who want to live in the home. These people are generally okay with overpaying, as the extra will be spread out over many decades and they will hardly notice.
Also, a homeowner will only sell a home for what they think it’s worth. They don’t take math and numbers into the equation as much. When you buy an apartment building, it is very clear how much income it makes. This directly ties into the value, making it easier to arrive at a fair and equitable price.
In addition to the costs, it is much easier to grow your portfolio if you are investing in apartments. Instead of having to go out and buy 20 different homes to rent out, you can simply go out and buy one building with 20 units in it.
In conclusion, hopefully this article has been able to show you some of the reasons why apartments can be a great wealth builder.