Having rehabbed over 300 single family homes and purchased over 200 apartment units in Arizona this past year I’m often asked, how can I finance and benefit from buying an apartment building.
While most investors concentrate on buying one single family home at a time, there is another strategy largely overlooked. From the very beginning of my career in Real Estate I have looked for ways to generate the maximum amount of money in the shortest amount of time. I also realized that there were certain advantages that multi-unit complexes had over single-family homes when it came to investing.
- Cash Flow: Cash flow on a multi-unit complex is much greater than that of a SFH. Simply because you have more rent coming from various units.
- Better Cap Rates: With the sea of investors flooding the single family home market the cap rates have compressed dramatically. Our analysis tells us the Multi-family market (in specific major U.S. cities) with building sizes between 50-250 units will be the next asset class to capitalize on as rents are rising due to rising population growth and a shortage of housing … thus better Cap Rates
- Property Management: With a Multi-Unit complex you have one central property management company, whereby single family homes in different areas will have different property managers overseeing their territories.
- Vacancy-loss: The more units you have under one roof, the less potential risk you have. If you have one single-fmaily investoment property and you lose your tenants, you’ve lost 100% of you monthy income. But, if you invested in a multi-unit four-plex and lost only 1 tenant, you would still have the other 3 tenants paying your rental income and expenses.
- Cheaper by the Dozen: The same as with buying anything in bulk. The more you purchase the better the deal! Carry this concept to multi-family housing, you will find great savings buying a 6 unit complex compared to buying 6 single-family homes one at a time.
- Lower Taxes & Financial Costs per Unit: In most cases significantly lower taxes per unit and financing one large multi-unit project will cut costs for loan fees, appraisals, surveys,etc.
- Economies of Scale: Owning an apartment complex vs several single family properties means the cost to maintain several roofs, several yards, several properties to market and manage are reduced to one roof, one building to maintain so the economies of scale are in your favor.
- Greater Appreciation: A $90,000 single-family home that appreciates 10% will be worth $100,000, while a $500,000 multi-unit complex in the same market with 10% appreciation will increase by $50,000. That is a $40,000 appreciation that you have benefited from.
With the Arizona Market poised for continued growth, and forecasters projecting 24.5 percent job growth through 2017, this is the perfect time to invest in multi-family apartment buildings. With Phoenix’s relatively low cost of renting (just under a $1 per square foot) and high occupancy rates (about 91 percent), the rental market is expected to continue to thrive right along with the housing market’s hike in home prices and dip in foreclosures. Investar USA will be bringing you a new educational series on how to invest in apartments in the USA.
If you would like for information, please contact Travis Cadman at Investar USA.