For many of us, purchasing an apartment complex sounds like a daunting investment with nothing but uphill battles. The thought is equal parts intimidating and exciting. The good news is that it’s not nearly as scary as it sounds. There are multiple options for investing in apartment complexes and numerous benefits. Apartment complexes quickly rose to the investment of choice in 2022.
To help guide you through the decision process, we’re releasing a series of articles starting with the basics, then detailing each step through your first close.
Pros and Cons
The first and arguably most important step is deciding if buying an apartment complex is right for you. Let’s look at some of the benefits and drawbacks of purchasing an apartment complex compared to a single-family home.
While collecting rent, adding additional channels of revenue, and cutting costs of repairs are alluring to your overall income, it’s important to note that the additional costs for maintenance and vacancies can vastly decrease your take-home. Owning and investing in an apartment complex is a slow and steady strategy that will gradually increase your portfolio value over time. While the profits can be substantial, so can the amount of work.
The Four Types of Apartment Complexes
After reviewing the pros and cons of purchasing an apartment building, it’s essential to familiarize yourself with the four Class types of apartment complexes.
Learning about each Class type will help you better understand your budget and determine where your capital will be spent. Keep in mind your goals for the complex and what you’re willing to invest in for repairs and renovations. This will ensure that you can meet your goals long before purchasing the complex. Many investors prefer Class B and C properties for their affordability and low risk during market changes. There’s usually a higher demand for B and C building classes regardless of the state of the economy.
The next mandatory piece of the puzzle is deciding how you would go about buying an apartment complex in the first place. Now that we’re familiar with the pros and cons of owning a complex and the different types of apartment buildings, how exactly does someone buy an apartment complex? Here are three different ways to go about doing just that.
- Buy It Yourself
This may seem obvious, but it’s also the choice that requires the most money upfront. In addition, navigating the complexity of purchasing an apartment complex by yourself can be the most intimidating choice of all. You’ll need to save the funds, set a budget, team up with a broker, make an offer, (hopefully) get accepted, find a loan, find property management, renovate, and decide if/when to sell. While you’ll be at the head of every decision, it’s incredibly time-consuming and can pose a higher risk to your personal finances.
- Buy It with a Partner (or Partners)
Partnering with one or more people presents an opportunity to pool capital and raise your budget limit. A higher budget means a broader array of buildings to purchase and more money for renovations and repairs. The downside of buying with a partner is the split decision-making process. You may have different visions for your apartment building or separate budgets for renovations. If you decide to sell, your partner may want to keep it long-term. You’ll need to discuss and document every decision and conversation beforehand so you can go into the transaction with your eyes open.
- Invest in a Syndication
A “syndication” is a pooling of funds to purchase a property. Our website has an extensive article detailing our role in apartment complex investments. The short version is that the syndication would do it for you instead of taking care of that long list of things you’d have to do to buy an apartment building yourself. Then, instead of buying it on their own, the syndication opens the opportunity for investors to purchase a small stake in the building. You rake in the benefits without having to play landlord.
Is it Right for Me?
Buying an apartment complex is a lot of work with numerous steps involved. Whether it’s your first time investing or your thirtieth, let 1 Vision Capital take the stress off your shoulders. We’ll walk you through our process and update you every step of the way. Visit our website for more information or give us a call today at (830) 326-9181 to find out how you can obtain financial freedom.