With over 400,000 new apartments built in 2022 (a 50-year high), it’s no wonder more investors are looking to get a cut of the action. Not only do rental property owners earn 45% more than the median household, but owning apartments is also a tried-and-trusted way to build consistent passive income.
Typically, an apartment complex or building consists of four or more units. Because of this, they are often more expensive to purchase than single-family homes – but yield a higher return.
Knowing how to buy an apartment complex and finance the project is key to rounding out your investment portfolio and increasing rental income. Read through the steps below to better understand how to get started.
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Starting by outlining your return on investment (ROI) goals and total budget will help keep you profitable long-term. Consider how much money you have for a down payment and how much you’d be able to spend out-of-pocket per month (or per year).
If you’re new to investing in multifamily properties, you may be asking, “How much does an apartment complex cost?” While apartment complexes yield higher returns, they’re generally more expensive than single-family properties. Having at least $100,000 to use for a down payment is the first stepping stone to finding a suitable investment property. However, you may need more or less than this amount depending on what type of property you’re looking for, and in what areas.
Creating strategic partnerships with other residential and commercial real estate investors can also help you fill gaps in your budget. If you don’t have quite enough to invest in the type of property you’re looking at, or you want to gain experience from seasoned professionals, finding solid partnerships or real estate funds with multifamily properties can help.
Finding a strong market to invest in is key to developing a consistent stream of passive income. When analyzing market options, you first want to look at historical data – the National Association of Realtors is a good place to start. Once you’ve located a few general areas of interest, dive further into your analysis by reviewing the following in each area:
When running your analysis, look at all the above metrics together. A market with steady employment and population growth may be a solid option, but only if the average home price is less than two or three times the average income. For example, even though cities like San Diego and New York often experience positive employment and population growth, neither will be likely to produce much cash flow since the average home value is often ten or more times the average income.
Once you have an idea of how much you’re able to spend, if you’re financially able to invest in an apartment complex, and what areas you’re looking at, you should start the pre-approval process. Before reaching out to just any lender, be sure to do your research on the lender’s average interest rates and other benefits of working with them. Additionally, getting pre-approved through at least two or three different mortgage lenders can help you get the best interest rate and service possible.
At Revolution Realty Capital, we guarantee closing times of 10 days or less and the most competitive rates in the market. By partnering with us, you’ll benefit from over 40 years of experience in real estate lending, with a wide variety of loan options available.