As an investor, have you been guilty of only examining the benefits of a particular opportunity? Building wealth is exciting, but you can’t trip over your own brain. Real estate investing is a lucrative industry, and the buys you make can pay dividends for life. Yet you want to make smart buys. Is the purchase of an apartment complex a good idea? Let’s examine the pros and cons of investing in commercial properties that cater to residential living.
Apartment complexes represent a unique aspect of commercial property investing. You are purchasing residential units, yet they are within a commercial building that represents a business that you own and operate. Even if the pros and cons direct you to invest in one of these properties, purchasing the right one is still of the utmost importance.
Since blind optimism is often a mistake that many new investors make, let’s start by looking at the cons or the downside of investing in apartment buildings. First, your money is going to be invested in physical property or real estate, so you know this means that your initial investment is far from being liquid. There is a redirect for this specific con, but let’s get to that in a minute.
Right now, it is important to get the downside of apartment investing. The fact that your financial investment isn’t liquid is one of the two main cons. The other main con is that you have to deal with tenants. Beware, this con has tentacles, which means it is far reaching and should cause you to do your due diligence. Not only is dealing with tenants a cause for concern in terms of your initial decision, but it should have everything to do with choosing the specific property that you decide on as an investment.
When dealing with tenants, you have to concern yourself with rent collections on all levels. Additionally, you are going to have to deal with maintenance requests. Add that to taking calls regarding all questions and showing units to prospective renters, and it can be enough to make you want to hire a property manager. Naturally, hiring a property manager eats away at your profits, but the choice is yours.
Benefits Of Apartment Investing
The downside to investing in an apartment complex has been discussed in a nutshell. Now it is time to examine the benefits so that you can weigh your decision carefully. One of the biggest cons mentioned concerning apartment investing was that it it equates to relative liquidity. However, the flip side to that con was hinted at in the beginning paragraph. You own physical property that pays dividends for life.
In other words, to dismiss the con of relative liquidity, you are going to consider the following objective and question. Are you willing to call this purchase a long-term investment, one in which you are more interested in the security of owning physical property and the dividends it pays? If you have answered yes, then apartment investing just might be for you. Yet you have to still find the right property for your belief in sustainable dividends to come to fruition.
Examining the pros of apartment complex investing even further, tax benefits rise to the surface. Deferred capital gains, tax writeoffs, recaptured taxes and depreciation are four of the terms that you need to familiarize yourself with in terms of apartment investing. When it comes to depreciation of apartment buildings, the 27-and-a-half-year window is an advantage vs the 39 year window you have when investing in other types of commercial property for sale in Cincinnati. The first thing you need to discover in terms of tax benefits concerns write-off opportunities for the reduction of taxable income. This is going to be very important to the managed growth of your business. You need to be doing what you can, not to avoid taxes, but to keep your tax liability at a reasonable and albeit appropriate level. What else do you need to know about the pros of investing in apartment complexes?
It might not seem like dealing with tenants on all levels would be easy, but there is something to be said about operational simplicity when it comes to apartment investing. People have lives to live, and they don’t want to be talking to their landlords about maintenance or financial problems. If you find the right property investment, and perhaps even hire a property manager, you have sustainable income without having to do much at all.
Do not approach that last statement with naive optimism. As mentioned, that is a mistake new investors make all the time, a blind optimistic view that neglects to address the cons of a particular opportunity. While you can appreciate operational simplicity, there is always work to be done. You can redirect the time saving benefit of your well-oiled operation into looking at growth opportunities and managing your business on all levels.
To avoid tenant disasters, occupancy rate issues, building maintenance nightmares and everything else you don’t want on your plate, do your due diligence. Weighing the pros and cons of apartment investing and making a decision about whether or not it is for you is only the beginning. Now you have to move forward and find the right property. You want a building that provides cash flow consistently.
You also want to create equity in your property. If you are unable to create equity, you are creating a business that is a sinking ship. Consider the risks of apartment investing, evaluate the numbers of each deal you approach, and do not leverage yourself beyond making this investment choice a comfortable one for you.
As you browse apartment complexes for sale, note how long they have been on the market. Look at the surrounding area, factoring in location in general and the other apartment buildings, or ‘the competition.’ Quite a lot of research should be done when you are considering such a long-term sustainable investment. Up to now, this is the biggest investment decision of your lifetime. Treat it that way.