Purchasing Apartment Complexes Pros and Cons

5 Replies

Opinions on purchasing apartment complexes instead of multiple houses? I plan on eventually having both, but was curious about what you guys think the pros and cons are. So pros and cons of apartment complexes vs multiple single family rental properties!  Thanks in advance for your answers.  

Apartments (100+ units):

Pros:

  • single location
  • single transaction
  • economies of scale (painting 100 units is cheaper than painting 100 houses)
  • professional management
  • higher capital gains due to forced appreciation
  • can be a truly passive investment

Cons:

  • higher turnover
  • higher maintenance expenses
  • lower COC returns
  • smaller pool of potential buyers

Houses:

Pros:

  • lower barrier to entry
  • lower turnover
  • lower maintenance expenses
  • no need for professional management on a smaller portfolio (less than 20)
  • higher COC returns
  • bigger pool of potential buyers

Cons:

  • multiple transactions
  • multiple locations
  • higher per unit repair costs
  • lack of forced appreciation beyond initial equity capture (ARV - purchase price - rehab)
  • professional management is more expensive than for apartments
  • semi-passive

Perfect! Thanks for the information!

@Nick B. - Would you say that SFR have more potential to appreciate over time than 100+ apt. complexes? you mentioned the lack of forced appreciation as a negative aspect of SFR investing but as long as the build cost is less than the sales/ square ft you could always add ft 2 to the property to capture additional equity. What are you thoughts?

Brendan,

I love both SFHs and Multi's - specially 100+ unit apartment complexes.

In addition to what Nick said...

100+ units are truly passive. I don't deal with tenant drama. With a 100+ unit apartment complex, you can afford a full time property manager and resident maintenance manager. No tenant drama, no maintenance calls. I got people for that.

PM as % of gross income is less than 10% (unlike SFHs). The economies of scale results in more cashflow which is offset by higher turnover. However, depending on your unit mix, you can have as low a turnover as SFHs.

Bottomline: I like the passive cashflow of properly managed 100+ unit apartment complexes (bought at the right prices).

I like SFHs because they're easier to sell. I like their capital gains. SFHs are like pigs. I like to slaughter (sell them) for the meat and get paid once. 100+ unit apartments are like cows. I like them for their milk (cashflow) and I get paid over and over again.

Both are good investments if you know what you're doing.

Originally posted by @Josh Gagnon :

@Nick B. - Would you say that SFR have more potential to appreciate over time than 100+ apt. complexes? you mentioned the lack of forced appreciation as a negative aspect of SFR investing but as long as the build cost is less than the sales/ square ft you could always add ft 2 to the property to capture additional equity. What are you thoughts?

SFR appreciation depends on local supply/demand fluctuation but you have no control over it except for buying that SFR in disrepair and fixing up the the neighborhood standard. E.g. if your total "all in" acquisition cost is $100K but the similar properties apprise at $120K, your forced appreciation is $20K. Anything over it may grow organically over time.

Apartment appreciation depends on the income the property generates and you have better control over it. E.g., if your current rents are low comparing to the similar properties all you have to do is to increase the rents and that would increase the value of the property. 

SFR value does not depend on rents.


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