What are the ideal demographics of an apartment complex if I want low costs yet high rent?

3 Replies

I have seen a few properties in my area that are attractive. I came across a 6-unit condo style building that currently has 5 of its 6 units occupied and charges $720 a month plus utilities for $380,000 which I thought was a great buy but wasn't able to afford.

Now I am looking at 150,000 range and I have seen a well kept apartments in below average neighborhoods that are still demanding 450-475 a month for rent.

Personally, I want a steady real estate that has long term renters. Is it possible to this with a low end budget or am I better off paying a higher initial investment for a higher return rate higher profits in the long term?

I think renting to families is generally seen as good for consistent, long term renters - especially if your units are in good school districts. I have read many horror stories about B/C neighborhoods, but you could spin that into a bigger story about geographic mobility. I would bet higher income people are actually more mobile, but more stable. 

You should also be pretty careful of the numbers for these deals. With that first one, the max rent-to-value (all 6 units rented at $720) is only 1.1%. That probably does not leave you much of a margin in case you have unexpected expenses or vacancies unless the building is brand new and you expect super low expenses otherwise. 

@Cory Mickler  If you want lower cost, and higher rents, look for newer construction. Stuff under 20 years old in decent neighborhoods. The newer the construction, the less maintenance issues. Also look for buildings where the tenants pay all of the utilities. This will save you a lot of money. 

I personally buy residential multi-family (4 plexes) right now.. The terms of the financing are pretty good (low interest rates, 30 year fixed rate mortgage). On commercial buildings, the interest rates could be higher, many of the loans are much shorter term (5-10 years), with a shorter amortization time (20-25 years) making payments higher, and cutting into profits.

@Cory Mickler   if you plan on using your own money and have that price point with the "low expenses" criteria, then I recommend buying as new of a 4-plex as you can. This is assuming you have a full-time job so you can get approved for the mortgage.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here