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Four Reasons To Invest In Apartment Buildings

For those keen on investing in real estate, the options are plentiful”but not all investments are created equal. A lot of real estate novices begin with single-family homes, or perhaps duplexes, assuming that starting small is the way to go. There is a certain logic to this, but it does not necessarily mean that investing in single units is the only way to invest. In truth, there are numerous advantages to beginning with apartment buildings”advantages that any real estate investment newcomer ought to be aware of.

Everybody Needs a Place to Live

Here is the first reason why apartment buildings are, in many ways, a no-brainer: Everybody needs a place to call home. There will always be demand for apartment units, regardless of how the market fluctuates. In fact, apartment buildings tend to do even better during periods of recession or economic tumult because they provide more affordable options than single-family units.

On that note, there is a related advantage, offered by apartment buildings, which is that more people can afford them”which means you have more potential tenants. Consider the amount of money it costs to buy a home versus the amount of money it requires for a decent apartment; though the precise sums are, obviously, variable, there is obviously a big gap between them, and that gap means that there are more prospective occupants for apartment building landlords.

A Matter of Leverage

Here is another way to think about the difference between apartment buildings and single-family units. Ask yourself this question: Would you prefer to own 30 separate houses, or 30 apartment units? If you own 30 separate homes, then you are going to have to have 30 different loans and pay for 30 different appraisals. You will have 30 roofs to take care of, and 30 lawns to mow. By contrast, an apartment building with 30 units will only require one loan and one appraisal; the maintenance needs will be centralized. This is the concept that commercial real estate investors call "leverage," and it is important to keep it in mind.

Forced Appreciation

Most apartments raise their rent at least once every one to two years. This effectively forces the appreciation of the entire building”that is, if every tenant starts paying you a little bit more, the overall value of the apartment building increases significantly. This is not always doable”forcing appreciation only works if you are really committed to keeping the building and the individual units in good repair”but it is certainly a handy option to have available.

Maintenance Issues

Related to the issue of leverage is the issue of maintenance. As the landlord, you are in charge of all of the maintenance and repair for all of the units that you own. This is a daunting prospect, for some investors, but those who invest in apartment buildings have a definite advantage. Owners of individual, single-family units often find themselves needing to provide a variety of maintenance services to a variety of homeowners, and contracting all the right vendors can be tough.

By contrast, apartment management companies can be enlisted to perform all of the around-the-clock maintenance and upkeep for an apartment building, which ultimately makes life much easier for the landlord. That is just another of the many advantages offered by investments in apartment complexes”and, an advantage of calling in property management professionals.