Why Invest In Apartment Buildings?
Thanks for dropping by!
My name is Reed and here you’ll catch me talking about all things associated with investing in apartment communities: everything from sourcing cracking deals to syndicating first deals.
I have just launched my company RSN Property Group that aims to raise capital from investors, and pool resources to purchase large multi-family apartment communities in emerging US markets.
My background is structural engineering and project management. Since graduating, I have spent the past seven years working internationally in the engineering and construction industry, gaining valuable experience in commercial real estate from a stakeholder management point of view.
Over this time I have been interested in creating long-term wealth through becoming a full time investor. I started my investing career with several small multifamily properties comprising of two to three units in upstate New York. I purchase underutilized properties, do them up to a rentable standard, and then rent it out to medium-low income families, some of whom are on government assistance.
For investors just starting out, the advantage of this strategy is houses are cheap and the rental returns are fantastic. This type of investing isn’t for everyone, nor is it going to create long-term wealth. So I decided to combine my experience as a project manager constructing commercial real estate and use my real estate investing knowledge to branch into the world of commercial real estate investing. This is a step up from the small multi unit properties I currently invest in, however with prudent, intelligent and painstaking research the fundamental principles apply to both small and large property investment.
The major hurdle I face, like any investor, is access to capital to be able to close on a deal when they become available. That’s why I decided to start RSN Property Group. My company aims to generate capital to collectively invest in apartment communities.
I want to start this first blog by outlining why apartment investing is so powerful to helping achieve financial freedom and independence: be warned apartment investing is not a get-rich-quick scheme, but it is the best way to build long term wealth.
Reason #1: Apartment Buildings Give You Three Basic Ways to Make Money
The thing I like about commercial real estate is that it lets you create money in following the ways:
- Cashflow: Apartments complexes typically produce multiple sources of income.
- Amortization: Your tenants are paying down your mortgage for you.
- Appreciation: Through increasing rents and control costs your operating income will increase as will the value of the property through inflationary market forces.
The above three money makers aren’t anything new and sometimes all three can be found in single-family properties, however using the power-of-scale, applying these same principles to a 150 unit property, over a period of 5-10 years, generates serious wealth: hard to beat as an investment strategy.
Reason # 2: Apartment Buildings are Easy to Finance
Over time obtaining a personal loan to purchase a house, or even to start a business, is becoming increasingly difficult as financial institutions are making you jump through many hoops to prove you can cover the mortgage payments.
Compared to any other business, commercial real estate is the easiest business to get financing for. Banks like the security of real estate. People understand and trust real estate, so it is easier to raise money for real estate than any other business. Apartment buildings are even easier to finance because they’re less risky than a single-family rental property. This is because multiple units spread out the risk of defaults.
Reason # 3: You Control the Value of an Apartment Building
The value of an apartment building depends on the income that property produces, unlike the value of a house, which is dependent on what similar houses are sold for in the surrounding area. The higher the income generated from a commercial property, the higher the value.
This means you, as the apartment investor, aren’t dependent on the market as much, which you can’t control. Instead, you have considerably higher control over the value of the property: if you maximize rents and minimize expenses, you will increase the net operating income, and that will increase the value of the building. This is why banks like lending for commercial real estate; it makes apartment building investing more predictable, stable and more easily understood.
Reason # 4: Apartment Buildings Produce Passive Income
Who wants passive income?
What business can produce a good return without requiring your full-time involvement?
The answer is, of course, apartment buildings, one of the few businesses you can set up to produce passive income.
Using a professional property manager not only frees up your time, but also ensures the building is managed properly. Once an apartment building is stable and the property manager is performing, your involvement in the investment can be minimal, allowing you to spend your time elsewhere, finding new deals, or spending time with family and friends.
View it like a well oiled machine, once you oil the machine (increase rents), regularly service the machine (regular maintenance and upkeep) and operated properly (property managers well selected and trained), it will run itself and you can step back… pretty much the ideal situation for any business owner!
Reason # 5: Investing in Apartment Buildings is Less Risky
As an investor you constantly struggle with the concept of risk vs. reward. Investing in apartment communities yields a reasonable return at a relatively low risk.
Prove it you ask?
Surely, why do banks so readily finance the purchase of an apartment building? Because in their minds, commercial property presents an acceptably low level of risk.
In conclusion, apartment buildings, and commercial real estate in general, provide a unique combination of high return, passive income and low risk making it the best opportunity to create long-term wealth.
Who’s ready to buy their first apartment building?
I hoped you enjoyed this blog; I will be blogging every 2-4 weeks. Join me next time when I discuss how to find a great property manager!
I will leave you with a great quote:
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosak
If you would like to learn more about how RSN Property Group can help you get started in apartment investing please don’t hesitate to contact us!
By: Reed Goossens