How to Invest in Apartment Complexes

How to Invest in Apartment Complexes


REITs let you buy small pieces of big apartment buildings.

REITs let you buy small pieces of big apartment buildings.

If you’d like to get your feet wet in real estate investing and don’t want to purchase single family residences, apartment complexes might be a good option. Your tenants will hopefully make your mortgage payment and pay the bills for you, leaving you to collect the profits. Compared to other types of investment properties, they’re usually easier to manage and to keep full. That’s because you don’t have to deal with businesses, configuring spaces for them and paying leasing commissions.

Think Like an Investor

One of the keys to investing in apartment complexes is to look at them differently than you would a house, where you add value by improving the property. Since investors buy apartments to make money, there are essentially two ways to drive value. You can either make it less expensive to run or increase the income it generates. For instance, you’d remodel a kitchen in a house because new kitchens cause buyers to pay more for houses. In an apartment, you’d decide whether the amount of extra rent you could get for a renovated kitchen, if any, would justify the expense.

Small Complex

From a lender’s perspective, a two- to four-unit apartment building is frequently seen as the same as a single-family home, especially if you live there. Because of that, one way to get started in apartment investing is to buy a multi-unit building where you occupy one unit. This makes you eligible to take out owner-occupant financing and to potentially get a low down payment.

While you’re living there, you can learn how to run an apartment while your tenants’ rent pays down your mortgage and covers at least some of the building’s operating costs. When you’re ready to move on, you may choose to hold on to the building and rent your unit to another tenant, giving you a pure investment property with the benefit of owner-occupant financing.

Large Complex

When you move into the realm of complexes with five or more units, the financing environment changes. You generally need at least 20 percent down and frequently more than that. Your lender may also look at your qualifications as a property manager before approving a loan. That can make it hard to buy a larger…

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