How to Buy an Apartment Complex - The Benefits of 5-12 Units in Real Estate
The real estate market has trends like any other market, fluctuating up and down. Anyone paying attention can see this, which is why every real estate investor should always keep a close eye on it. More than just understanding the trends, the goal is to spot what’s overlooked. Seeing what others don’t means finding hidden value!
Today, one such area of hidden value is in multi-unit complexes—specifically those offering between 5 and 12 units. Multi-Family properties are more than just an overlooked area of the residential real estate market. Multi-Family homes are right in the sweet spot that fits the serious individual investor’s needs. In this post, we’ll explain how to buy an apartment complex and how you can use one to bolster your investment portfolio.
How to Buy An Apartment Complex As An Investor
Apartment complexes come in a variety of shapes and sizes. While there are buildings that can house 100+ units, there is a key benefit to smaller apartment complexes - notably ones with 5-12 units.
However, what typically stumps the average investor learning how to buy an apartment complex for the first time is the fact that you cannot buy these properties with a traditional residential mortgage.
Instead, these residences are classified as commercial properties and thus they come with higher barrier to entry.
However, if you are working with a commercial realtor as well as a commercial mortgage agent the process becomes much smoother.
That is why we want to offer you a free strategy call, that way our commercial team can hear your goals and get you started on the right path.
So, if you would like to learn how to buy an apartment complex with strong, creative financing (or even how to buy an apartment complex with no money!) click the link below to book your call today.
Apartment Buildings Have Quirks For Investors
If I were an investor looking for an apartment complex for sale near me, there are a few key quirks I would need to consider that I think you should keep in mind as well.
The market for large complexes is too expensive
Today, real-estate syndicates spend most of their money on multi-family rentals. They deal in large sums and cannot afford to let those funds sit unused. As such, they're buying up large swaths of the market.
As a result, big buyers have priced out individual investors. Large investors have various schemes for keeping their costs low and turning a profit. Such as, gradual improvements to the property, regular rent increases and tapping into economies of scale. Sometimes, they’re even able to keep the property staff. Big investors pay more upfront. But, they are looking for passive investments, which means safe and low-maintenance.
The market for single-family homes is complicated
Single-family homes are a long-term investment. You see most of your profit from the sale of your home. The benefits of investing in single-family homes are:
- You collect higher individual rents.
- Your renters are, on average, higher-income and less likely to damage or vacate early.
However, you don't get much cash flow from a single home. Average rent is correlated with average mortgage costs. So, if you want income-level cash flow, you may need a dozen properties or more.
5- to 12-unit properties are the sweet spot
When you are learning how to buy an apartment unit-count matters. After all, the number of units will not only change the number of rental streams coming in, but it can drastically change the demands on you and your property management team as you add more units.
5- to 12-unit properties have the most utility and value for an average investor. You'll collect more rent than from a similar investment in single-family homes while finding properties under the radar of larger investment firms.
Key Considerations When Investing in an Apartment Building
There are plenty of considerations you need to be aware of when you are learning how to buy an apartment building in Canada. These considerations range from competition to property demands to the appraisal and financing process.
There is less competition with big buyers
As mentioned, larger investors tend to pass on these complexes. Real estate syndicates often own property all over the world. Attending to them on such a small scale makes their investments too complex. This is the one market where smaller, local owners actually have the upper hand in terms of how to buy an apartment complex.
These properties demand a hands-on owner
While big buyers can't afford to be hands-on, you can. You know the area and can drive to your property when required. And, you know the best service providers in town. As such, these properties are more valuable to you than to a real estate syndicate. And, luckily, they're much cheaper too!
Commercial property is appraised differently
One of the important things to note when working out how to buy an apartment complex is the fact that when a building has five or more units, it’s considered a commercial property. As an appraiser tries to gauge the market value of the property, potential cash flow is usually factored in. If you end up refinancing later with more consistent cash flow from renters, you'll get an even more favourable appraisal and valuation.
Discover How To Rent A Property With This Step By Step Guide
Some words of caution when investing in multi-family rentals
If you’re thinking about learning how to buy an apartment complex with 5- to 12-unit multi-family rental for the first time, consider the challenges you’ll face. The biggest is collecting rent from each tenant.
Keep in mind, apartments have higher rates of skipped rent and eviction than single-family homes. But, that's part of the bargain. If you have good processes and a team that knows what it's doing, you'll be fine.
A good property management company can also help keep vacancies low and ensure rent is paid. The use of a property manager will consume a small percentage of your profits. You can keep costs low by buying several of these complexes in the same area. Then, you can negotiate better deals with management and service providers. At this point, a good management company just might pay for itself.
Remember There are Cons of Investing in Apartment Complexes
One of the primary drawbacks of investing in apartment buildings is the high management demands as the buildings get larger. This means that for smaller investments without a large-scale property management plan, there may be some key drawbacks while working out how to buy an apartment complex.
However, the benefits do greatly outweigh the cons in most cases.
Think big, invest medium, keep costs small
Small real estate investors have been priced out of larger multi-family complexes. It may be frustrating, but being priced out is a blessing. You're not going to waste your money on properties with low returns and high costs.
If you can deal with the complexity (which you can), investing in medium-sized complexes is the way to go. As always, we encourage you to think and search locally. Your greatest advantage is your local knowledge. Turn that to your advantage by investing in the sweet spot of real estate investing: The 5- to 12-unit complex.
So whenever you're working out how to buy an apartment complex, remember this: think big, invest medium, and keep costs small.
Is An Apartment Building a Good Investment?
So, is buying an apartment complex a good investment? We'd say yes.
Once you have learned how to buy an apartment complex, it is time to move forward and make the purchase. Of course, naturally this process is going to differ based on the distinctions of the property.
How Much Does it Cost to Buy an Apartment Complex?
While planning out how to buy an apartment complex as part of your portfolio, you are naturally going to need to answer the question of how much the building is going to cost.
The final cost of the property is going to vary based on factors such as the quality of the property, number of units and location. As a result, the process of figuring out how to buy a 4 unit apartment building is going to result in a different final cost than how to buy an apartment complex with 5-12 units or more.
Financing an Apartment Complex
One of the core steps in learning how to buy an apartment complex is securing the right financing. While this can be a complicated process, we want to help you make things simple and easy.
In order to streamline your experience in learning how to buy an apartment complex with the best available financing, we have a dedicated commercial team ready to help you.
So, if you are ready to get started and begin the process of learning how to buy an apartment complex today, click the link below to book a free strategy call with us.