Many investors looking at the real estate market for opportunities begin by looking at the single family market. But that’s not necessary. The main reason investors start out buying homes is because they’ve heard hyped success stories or watched an infomercial highlighting sketchy financial techniques involving phrases such as “no money down” or “fix and flip.”
Sometimes overlooked are the greater opportunities for investing in apartment complexes. For a couple of reasons, apartment complexes are a more interesting investment, and maintain a more significant value.
First, apartments generally provide a more affordable housing option to residents. This is a benefit to the investor when mortgage pricing increases, and if often does, so fewer people can afford to purchase a home. They seek apartments as residence. Or if enough homes exist in the market, to meet demand, builders stop building. When demand catches up, they start developing again, because it becomes profitable. That means prices increase, and with them, mortgages. As mortgages increase there is greater demand for apartment rentals and that pushes rent higher. Rent growth always follows mortgage growth. This is one of the best reasons to buy an apartment building.
There is also the cost of maintenance to consider, when looking at single family homes versus apartment complexes. When you buy apartment buildings, expenses include taxes, insurance, utilities, maintenance, management, advertising and much more. Not only that, but you get to spread out the cost of maintaining the property across more units. The economies of scale are far superior to homes and 2-4 unit properties. For example, if you have a total of 20 houses, you have 20 different roofs. You also have 20 different utility bills, tax statements, mortgage payments and who knows how much time you’ll spend traveling from property to property. The numbers just make more sense with apartments.