Owning an apartment complex seems an enticing prospect for many a property investor. Despite there being a handful of cons to consider, there is an increasingly appealing spate of advantages too. Possible roadblocks are typically mitigated by the number of associated benefits that come with apartment complex ownership and it is wise to think about all of the nuances before pouring funds into this kind of project. Do you want to know more about the pros and cons of investing in apartment complexes? Read on.
Pros
Starting with the pros is a nice place to kick the discussion off, and there are plenty below to explore. The following list is in no way exclusive but serves to cover the key points worth knowing about.
A Flow of Passive Income
Passive income is a way of accumulating capital in the background. It involves a level of investment, and in this case, that would be purchasing an apartment complex. The benefits of passive income are self-explanatory in so many ways but here’s what you need to know. Firstly, it is an easy way to establish freedom financially because you have a rolling, reliable source of incoming wealth. Secondly, this helps you achieve any money-related goals you may have quickly and securely. Lastly, passive income allows high numbers of investors to accrue a reliable retirement pot for later in life.
Low Risk and High Reward
The cost is spread out across the multiple apartments within the complex, which makes the financial risk far lower than owning, for example, multiple family homes spread out across an area instead. The reward is also higher than multi-home ownership because everything you own is in one place. Thus, the general convenience is more attractive and practical too. All of this adds up to a high reward financial investment and this is appealing in its own right.
Prestigious Insurance Policies
On the long list of demands for property owners comes insurance. This is an additional expense, and that is a fact. However, the benefit here is that apartment complexes often come with prestigious policy perks and highly reputable providers like Titan Risk. So, while there is a risk that you are carrying more liability because of the increased occupation and general risks carried by the building, it is good to know that with the right insurance premium, both you and your asset will be protectively scaffolded.
Tax Perks
Depreciation deductions are the biggest benefit in this sector, and this all leans into the overarching tax advantages of apartment complex ownership. It is possible to deduct things like maintenance costs, overhead operating expense demands, and management fee obligations too. This makes apartment complexes attractive assets tax wise because there are fewer demands and bigger breaks comparatively than with single homes.
Cons
So, those are the highlights for the pros list, now it is time to think about the disadvantages linked to apartment complex investments.
Management Demands
If you are going to have more tenants, you are also opening yourself up to an increase in demands management wise. There are services that will provide vital support in this area, but the ultimate responsibility will always rest with you. Typical duties for an apartment manager include:
- Rent collection from all occupants
- Adhering to maintenance requests
- Marketing and advertising vacant apartments
- Securing and vetting tenants
- Evictions
The list goes on and on, and it is vital that you come to terms with what this means for your day-to-day agenda. This is not something that you can sit back and do nothing with, as it will require a certain level of daily intervention in order to retain viability.
Upfront Cost
Buying a major building such as this will cost a lot more upfront. You could be facing a downpayment of around $100,00 in most areas, so you have to really want the investment and be determined to make it work. If you are going to pour this much capital into one venture, you also have to be ready to face the hurdles along the way. If you don’t have the determination, you risk losing a ton of money and nullifying any potential returns on the investment in the future. It is possible to secure lender support, but the deposit and initial payment will always be higher than with a single-family home or something smaller.
Undesirable Tenancies
Another factor that may or may not put a spanner in the works is the potential for undesirable tenancies. What this means for you is that there will always be an expected rate of occupancy amongst the complexes. Any number of these tenants could become difficult to manage and cause a range of problems throughout their stay. It is true that as a landlord, you have certain obligations, but what becomes more difficult to counteract are the people who don’t pay rent, cause unfair damage, and create problems for neighboring occupants as well. Anything from excessive noise to building neglect can take place, and there is no real way to predict how a tenancy will play out. Given that you will have a higher number of tenants to manage, the risk is also greater.
Liquidity
The last con to keep in mind is the liquidity factor of the asset. What this means for you is that if you were hoping to re-distribute capital in the short term, this would not be possible. An apartment building is more of a long-term project with minimal liquidity attached. It does not rank optimally in terms of liquidity, and this is good to know if quick turnover and rapid profit are two of your top financial goals.
Apartment complex owners have a standard number of risks to navigate. The key to figuring out whether you are ready to invest in this area of real estate comes with learning whether you can face the risks with strong strategies, or if they are too big to navigate. The advantages speak for themselves and are certainly compelling, so finding the right balance is the answer.
