The New Hot Investment: Apartments

Property investors typically fall into three camps – Single family residential properties, commercial properties, and apartment buildings.  Single family is a typical entry point because of the lower capital requirements, but it requires a large amount of personal involvement.  Commercial properties are risky in this market with high vacancy rates and high business failures, though both are on the decline at the moment.  However, we at Home Expo Gallery believe that the best investment property given the current market conditions and national economic situation is Apartment Buildings.

Purchasing an apartment building can be a great asset, as long as you invest in one that meets your budget and enhances your financial status. There are a lot of things to think about when you buy an apartment building. Consider the following factors before committing to such an endeavor.

  • Everyone always needs a place to live.

Your product, apartments, will always be in demand. With foreclosures happening everywhere along due to the sub-prime mortgage fiasco, there are fewer and fewer people able to buy into a new home. They instead move into one of your apartments for the time being as they rebuild their credit.  Because they hope to get back into a home, the risk to your cash flow is reduced as well.

  • Apartments have the ability to produce passive income or monthly cash flow.

Or you can refinance the building and pull out cash tax-free. The goal here is to create enough cash flow to exceed your personal monthly expenses. It will take some effort and risk to get there, but how much do you value financial freedom? Try doing that with a mutual fund!

  • You can force the appreciation.

Most apartments can raise their rents once per year. As rents are raised, the value of the building goes upward as the net income goes upward. The second comes by way of your tenants paying your mortgage over your years of ownership.

  • Apartment investments are inflation-fighters.

Rental rates tend to move up with construction cost increases. And rental leases are usually adjusted upward every year as opposed to other commercial real estate that adjusts once every 3 to 10 years – maybe.

  • Apartments are good hedges against economic volatility.

If the real estate market downturns, you can lower rents to keep your building full. When the economy upturns, you can raise your rents and ride the wave to higher cash flows.

  • They make very good tax shelters.

Name another investment where you can pocket thousands of dollars annually and write off depreciation, mortgage interest, and capital expenses, and pay no taxes at year-end.

  • No day-to-day management on your part.

Wouldn’t it be great if you could reap all the benefits of ownership (cash flow, appreciation, and tax advantages) without having to do any work? Well, if you hire a good manager or management company, that’s what happens. One word of caution: watch your property manager like a hawk because no one cares more about your investment than you do.

An apartment building can be a lucrative investment if it is done right. A good investor will choose the right building, get the best advice and gather all the information about the business. A great investor will get to know local realtors, will mix with other investors and will get a mentor. Savvy investors will act wisely and won’t allow emotions to govern any final decisions. A skilled investor will do the math, will make sure loans can be paid back on time, and will have a limited liability if loan repayments cannot be met. The best investors will grow their portfolio by adding more and bigger properties over time.

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