Upgraded top dollars rent apartment (5+) not a good buy?

1 Reply

One question always in my head.

People always talk about buying apartment buildings (5+ units) is good because of the forced appreciation.

Forced appreciation usually happens when investors buy a distressed property, fix and upgrades the properties, then raise the tenant rent to top dollars, so the cap rate is good, to have the effect of forced appreciation.

But then an upgraded top dollars rent apartment buildings is not a good buy for the next buyer because there is no forced appreciation anymore.

Building is upgraded already. Rent is in top dollars already. There is no way to have another forced appreciation for the next buyer.

Why would I buy an upgraded top dollars rent apartment buildings if I cannot sell it at a higher price to the next next buyer? 

People say, the main difference between (5+units apartment buildings) and (any residence below 4 units such as SFH/townhouse/condo) is forced appreciation.

If buying a property with cash flow only and without appreciation, I would prefer to buy a SFH/townhouse/condo instead of an apartment building that don’t have force appreciation anymore.

During an upward momentum market, the SFH/townhouse/condo can still appreciate regardless rent is increased or the property is upgraded.

But an upgraded top dollars rent apartment building cannot be appreciated anymore even though the market is on an upward momentum, because the cap rate is fixed (such as 5.5%) at the top dollars rent already.

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