How to Invest in Apartments: (Beginner Friendly)

The real estate business is more accessible now than ever. Technology has opened new doors for smaller investors, removing the old entry barriers and allowing smaller amounts of capital to go further. If you’re thinking about becoming a real estate investor, you probably already know that apartment building investment is among the best investments you can make. The trick is working out how to invest in apartments.

Luckily, the real estate investing market has changed dramatically over the past decade, and there are now many different ways to invest in apartments as an individual investor. This article contains all the information you may need to invest in apartments.

What's Ahead...

Where to Invest in Apartments

Like most real estate investors, you can invest in apartments almost anywhere. If you’re in an area with a lot of income potential, you can probably consider building an apartment complex. Otherwise, most areas have a small enough number of rental units, and the property is relatively cheap.

Apartments

How to Invest in Apartments

If you follow the real estate investment secrets we have revealed in this article, you will know how to invest in apartments and learn the key factors that will earn you six figures sooner than you expect.

  • Make a Personal Purchase

The simplest and arguably most obvious way is to purchase a building yourself. This needs the biggest initial investment and can be the riskiest of the options discussed here. Admittedly, it is your responsibility to ensure that everything runs smoothly. You must do your research and ensure that you are ready financially to make the purchase.

  • Invest in a Real Estate Fund

Real estate funds are a kind of mutual funds invested in real estate firms and REITs. To invest mainly in apartment complexes, look for corporations specializing in multifamily properties or real estate funds investing in REITs.

Real estate funds operate on a grander scale than syndications. These funds often have more significant minimum investment requirements and deal in many properties simultaneously. Other ways to buy real estate funds include real estate crowdfunding platforms.

  • Invest in Real Estate Investment Trust

One of the oldest investments in the market, real estate investment trusts (REITs) has seen dramatic growth over the past decade. With an increasing number of people having an interest in investing, there has been an increased demand for REITs.

For many reasons, REITs have been a good investment, but the most common is that they are low-cost investments. The investment process is the same as any other investment but with a different backdrop. A REIT is a private equity firm that owns and manages properties. Unlike other investments, you won’t have to pay taxes on your real estate profits.

Other Ways to Invest in Apartment Buildings

There are many other ways to invest in apartments, each with their own pros and cons. Here are some options to look at if you’re interested in going into the business.

Equity in Real Estate Investment Trust

Another low-cost way to invest in apartment buildings is with equity in a real estate investment trust (REIT). Unlike partnerships, there is no capital gain or income tax on real estate investment trusts. Instead, the investors in equity in real estate investment trusts are treated like ordinary investors who are required to pay taxes on their profits. Furthermore, many barriers have been removed in the market for REITs. This has created an environment where there are numerous different investment types available.

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Condo Investing

Condos are generally smaller units that are easier to manage than larger buildings. However, there’s no way to 100% finance a condo purchase. But with a good credit score, you can often get a low down payment option with a low-interest rate. Condos are riskier than co-ops, and you’ll want to do your research and make sure it’s in a good location and has great resale value.

You should also consider insurance against condo association risk, which protects you if the building’s other owners are behind on their dues. Again, be prepared for more hands-on management since you’ll vote on issues like hiring a manager, deciding on repairs, and approving budgets.

Equity Investments in Co-living

For years, millennials and other new generations have rejected the idea of purchasing a home. Instead, they choose to live in “co-living” arrangements. Unlike traditional rental properties, however, co-living arrangements are typically non-traditional in nature. Furthermore, they may be fleeting and non-guaranteed as investors have come to expect stability from conventional rental properties.

However, some investors have taken advantage of this new trend by providing co-living arrangements with equity and guaranteeing an inevitable return on investment. These investors purchase a building, create many units for co-living, and then rent the remaining units on a traditional rental basis.

By doing so, these individuals are able to guarantee the return on investment for investors while still providing the non-traditional living arrangements sought by many millennials.

Equity Loans

One of the common ways people invest in apartments is via an equity loan. You find a property you want to buy, and the owner agrees to let you finance the purchase with a loan. Here, your ownership stake is the collateral.

You pay interest on the loan and typically have a set term, at which point you’ll have to pay off the loan in full.

When you’re looking for equity loans, make sure to look around, get pre-approved, and get a clear outline of the process and interest rates. You should also ensure you’re not overleveraging. Ideally, your total debt amount should be no more than six times your annual income. Once you have one equity loan, using the same lender to fund other deals is common, adding to your debt load.

Co-Op Investments

Co-op buildings are a great way to get into apartment ownership. In many cases, you can make 100% financing deals. This means that you pay the total purchase price of the apartment upfront and then get your money back over time as the owner makes monthly payments to you.

Co-ops are managed by boards of shareholders, meaning you’ll need to get involved more hands-only than you would with a traditional rental property. You may be required to attend meetings and vote on issues like raising rents. In return for your effort, you’ll have a more predictable monthly cash flow since co-op owners pay a share of their rent in advance.

Real Estate ETFs

Exchange-traded funds (ETFs) are another great way to get exposure to commercial real estate without worrying about specific properties. Unlike traditional investment funds, ETFs are passively managed and track a particular index.

Although each fund is different, most real estate ETFs provide exposure to office buildings, industrial parks, and hotels. Additionally, some include retail and residential real estate. Most REITs also track an index of real estate assets. The downside of ETFs is that they don’t offer the same level of granularity as REITs. You also won’t receive regular dividends like you would with REITs.

Individual Properties

Finally, you can purchase individual properties and collect annual or monthly rental income. However, the main challenge with this option is that you’ll be responsible for managing the property. For example, if you buy an apartment building, you may have to hire a property manager.

You’ll also have to pay for all repairs, taxes, and insurance on the property. Luckily, many states have programs that offer tax breaks to encourage new investors to buy and improve any dilapidated apartment building that may have been abandoned.

One important thing to remember is that having your own real estate can add to your income, but it is also an enormous responsibility. You’ll need to track expenses and ensure you’re covering them with rental income. Additionally, real estate is often a long-term investment, and it can take years to recoup its value.

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Factors You Need to Consider Before Investing in an Apartment

The real estate market is a dynamic one that goes through cycles and constantly shifts. Even in a tight market, it’s still crucial for many real estate investors to do their due diligence before investing in any property. The wrong choice could cost you lots of money down the line, regardless of how hot the housing market is at the time you invest.

Here are some things to consider before investing in an apartment.

  • Know the Pros and Cons of Investing in Real Estate

Real estate investing is a highly lucrative business. Moreover, it’s easy to pick up on the fact that becoming an investor can be a good way to make money. However, there are a number of risks inherent in the business. 

One of the most common risks investors take is becoming too interested in the current market for its full potential. In order to protect themselves, many prospective investors return to their roots and invest in commodities or other risky investments.

  • Professional Management

A high number of vacant apartments or occupants who pay late might cause cash flow issues and reduce the net operating income of your apartment building. Finding a reputable property manager can significantly simplify these responsibilities. 

Having a professional company on your side can help you reduce risk and ensure proper maintenance of your building. While management companies often charge a percentage of the rent, they can be worth it, especially if you’re new to investing.

Property management companies generally have connections to commercial lending institutions and can assist with obtaining financing for up to 100% of the purchase price of a property. They also often offer tenant screening and background checks to ensure the tenants are suitable for your building.

A manager will also handle day-to-day tasks like maintenance, rent collection, and tenant issues. If you hire a property manager, make sure you have a contract outlining what they will do and how much you will be paying them.

  • Understand What You Are Buying

An investment in real estate is different from other investments, such as stocks or business stocks. You don’t own any shares of companies in real estate. Instead, you own the right to sell your ownership interest in the property.

This means that the rest of the world doesn’t yet know precisely how much land will be needed for a development lot, what infrastructure will be required to complete the project, or how much money will be needed to build the desired house. 

Knowing what you’re buying doesn’t guarantee that you’ll be able to profit significantly from it. You need to be careful about what you buy, as it could do more harm than good.

  • Research on Real Estate Investment Trusts

As with most investments, you should first look at your financial situation and ensure that you’re in the right ballpark. You can begin the research process if you have the funds needed to start an apartment building investment.

Numerous sources have helped many real estate investors research and purchase properties, including city and state-specific databases, professional toolkits, and website information. As an investor, you can pick the perfect investment based on your personal financial needs and what you’re willing to throw away to make it a success.

How to Invest in Apartments

  • Check on Basic Infrastructure Requirements for Your Investment to Succeed

The most important factor you need to consider when buying an apartment is the quality of the infrastructure. It is very crucial for your success. While it’s true that we all make mistakes, it’s also important to remember that you never truly own an object until you’ve paid for it.

Make sure you know the total cost of your investments, including any upfront costs included in the purchase price. This will help you make sure that no hidden fees are tempting you.

Additionally, you should be sure that you are financially prepared to handle the costs and risks that an investment of this scale carries.

Conclusion

It is evident that apartment investing is one of the best real estate investments today. However, you must think about a lot of things before you make your investment. While there are many ways to invest in apartments, no two properties are the same. This is why you must be careful while searching for how to invest in apartments.

You’ll want to research each building thoroughly to ensure it’s a good fit for you to make a passive income. Real estate investment isn’t a regular business you can just put your money into. It requires patience and dedication.

Also, remember that no investment is risk-free. Be sure to spread your money around to minimize risk and make it easier to ride out the ups and downs of the real estate market.

You can use the help of reputable real estate companies or an agent to educate you more. We hope you make six figures in no distant time. Invest wisely.

Why Investing in Apartment Buildings Just Got Much Easier

Paul Martinez

Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.  Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.