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Buy an Apartment Building Today?

by Ted Karsch on July 22, 2008 · 8 comments

  

Buy an Apartment Building Today?

In today’s turbulent financial markets many investors are looking for ways to grow their money that will offer a steady flow of predictable income and limited market risk. More and more people are buying apartment buildings to help diffuse the effects of inflation on their portfolios. Apartment buildings offer many exceptional advantages over traditional investments such as stocks, bonds and mutual funds. This is especially true in a recessionary market environment. In fact there are many attractive attributes of an apartment building investment that many investors who are new to commercial real estate may not even know about. There are some interesting facts about buy multi-family property investing that could radically change your perception about this fascinating and lucrative part of the investment world and inspire you to go out and buy an apartment building of your own.

Warren Buffet once said that “wide diversification is only required when investors do not understand what they are doing. This quote seems especially true about the average investor in the United States who is listening to the advice of a financial adviser who in reality knows little more about the markets then himself. Usually financial advisers will recommend that a client be well diversified in investments ranging from stocks, bonds, mutual funds or maybe even a real estate investment trust. The adviser is putting his or her client into a group of “diversified” investments that were recommended by the firm’s top adviser and the research department. Unfortunately, however, for the individual investor is the fact that these investments are basically designed to preserve the firm’s capital under management and they don’t take into great regard the individual investor’s need to grow his capital.

The most successful investors and those that see the greatest returns are those that specialize in a particular sector. And the timing has never been better to begin specializing in apartment building investing for the average investor. The stock market is under intense earnings and inflation pressure. Investors need to look at a direct investment in an income producing apartment building to establish a profitable stream of cash flow that could last for decades to come. Many thousands of individual investors have been able to secure their financial futures by specializing in this unique niche and leaving behind the mediocrity of financial advisers and stock pickers.

If there has ever truly been a recession proof business it has to be apartment building investing. Even with the US economy is turmoil and business cutbacks people will always need a place to live. The actual demand for rental units in the US has never been higher then today. A total of 36 million of all households in the US are renter occupied. In total, a full 83% of all households under age 25 in the US are occupied by renters. Furthermore, a full 55% of all households between 25 and 35 are renters. The growing senior segment of society will be living longer and looking for rental properties as well. These are a few impressive statistics that demonstrate the strong current and projected demand for rental housing.

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{ 8 comments… read them below or add one }

Jim Johnson CRS July 22, 2008 at 10:20 pm

Now is a good time to buy real estate in Bend Oregon also. Nice blog!

Reply

Chris Lengquist July 23, 2008 at 6:40 am

I agree with your premise. Getting the financing today is much more difficult than it has been, however. I’m working a couple deals right now that are shaky only because of the current lending environment.

That said, a niche in the market will almost always yield greater dividends than your mutual funds. Period.

Reply

Miami Real Estate Attorney July 23, 2008 at 12:43 pm

Multi-family properties here in the Miami area rarely generate any real cash-flow, as for the last decade they were bought and sold based on future appreciation. Breakeven is usually par for the course. Refinancing is often impossible because the appraisals are down and taxes are up.

Reply

Charlottetown Real Estate July 23, 2008 at 3:41 pm

I believe that it is called diworsification. Why waste your time doing something that you don’t excel at. No money at that. Spend your time doing what will give you personally the greatest return.

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paul youngblood July 23, 2008 at 11:58 pm

There is one “litmus”test for apartment buildings,and anybody who decides to go any other way…get out before you lose your shirt.Apartment buildings are valued at,or let me correct that…should be valued at how much income is left “AFTER”expenses.That’s why I never put any stock in “proformas”because it is based on what it’s going to do in the future,I…am concerned more with what is it doing today….because you can create revenue and for each vacancy that’s filled…you create income and value.Is this a-typical of all…probaly not..but I’ll tell all you guru’s this:you buy yours on the value method of what it’s going to be worth a year down the road…I’ll buy mine for the income..and 2 years down the road….you’ll be selling me your building for a whole lot less than what you paid for it..Why???because I built equity when I bought mine,improved it,did a 1031 exchange…..and then used the equity…to get your building.Don’t hate the player…..hate the game.

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Commercial Real Estate St George July 28, 2008 at 10:20 am

The most important part of buying an apartment building is making sure you have a good property management company.

This is what a lot of commercial real estate owners have is tenants and managing.

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MasterPlan Capital LLC - Commercial Mortgage Loans - Glenn July 28, 2008 at 10:23 am

Here’s the problem:

Property owners are not keen on parting with profitable buildings just now.
Think about it; if you had an apartment building and were making money why would you sell it into this (horrible) market today? Why not wait 36 months or when the market may have very well recovered substantially?

If you are considering entering the multi-family sector, be prepared to pay top-dollar for properties that cash-flow. Competition for such properties is intense and lenders will look for experienced investors with healthy balance sheets and large down-payments.

Reply

rentBits October 16, 2008 at 12:30 pm

Very true. It seems like the diversification talk is only there to protect the uneducated investor and uneducated investment broker.

Reply

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