Is Buying an Apartment a Good Investment? (Beginner Friendly)

How Is Buying an Apartment a Good Investment Decision?

1. Passive Source of Income

Rental income from an apartment is an excellent way of making money. Moreover, your property also undergoes steady appreciation. Rental properties, such as apartment complexes, are financially rewarding. As an additional benefit, you can also curb property expenses such as mortgage and maintenance costs. 

Furthermore, investing in apartments warrants an even higher ROI than the stock exchange. As a tip, consider buying your apartment in a good location. A suitable location will grow your rental income while keeping debt repayment constant. Hence, buying an apartment is a long-term investment that will generate constant earnings while remaining an asset you can sell at any time.

2. Affordability for First-Time Real Estate Investors

For first-time investors, apartments provide a cost-effective entry point with a positive cash flow. It provides a safe entryway to the market, giving you more options and fewer hazards. Also, if you can afford it, you can buy several units in the same apartment building to multiply the cash inflow. This will diversify your holdings in the same place and reduce net operating income (NOI). Reduction in NOI will further help you reduce the debt balance. So, you will be generating more capital from the same source of investment with lower risks.

3. Yields a High Return Value

Investing in apartment complexes produces a steady source of income. Moreover, throughout the investment, it can yield a large return. Investors often use the 1% Rule to calculate whether a property will make them money. According to this guideline, the monthly rent must be at least 1% of the total cost of the rented property.

According to this rule, the rent must be higher than the monthly mortgage payments for the home. If not, you wouldn’t have enough money coming in each month.

For instance, you typically would only want to pay $200,000 for a house that rents for $2,000 per month.

4. Property Tax Benefits

When you own a rental property, you get certain tax deductions. Real estate owners have to pay gradually decreasing taxes on rental properties due to the depreciation of the property. Moreover, the IRS lets you deduct property maintenance and conservation expenses. Based on such tax benefits, you may be able to deduct around 20% of your net rental property tax. Also, according to the US tax code, your mortgage interest is deducted as this interest is a business expense. In certain scenarios, you may even get a break from paying property taxes altogether. 

5. Multifamily Properties Investment

Sometimes, as a real estate investor, you would prefer investing in multifamily properties. Multifamily investing lets you increase your income while also reducing the vacancy rate. The vacancy rate is the percentage of all available units in a rental building. It applies to a hotel or apartment complex that is vacant or unoccupied for a specific period. This will help you make a portfolio quicker as a real estate investor.

Multiple-family property can help a large investment fund build or sell large rental apartments. It is easier to acquire or manage a 20-unit apartment complex than to purchase 20 separate single-family homes.

6. Suitable for the Masses

Apartments are well-liked by downsizers, first-time buyers, and other investors. So, you have a larger pool of potential buyers when you want to sell your apartment. Moreover, the increased appeal of apartments to the general public increases demand and raises the price of your property.