For real estate investors who are looking for more than just a single income from one home or property, an apartment complex may provide the answer. An apartment complex is considered to be a commercial property – which is essentially a property that consists of five units or more.
One of the key advantages to owning an apartment complex is the leverage that it can provide an investor with. This means that in most cases, an investor’s per-unit cost will be lower than that of purchasing just one single investment property. In addition, when owning a large multi-unit property, having just one or two vacancies will not have nearly the negative effect as it would if you had a vacancy in your only property.
The incoming cash flow from an apartment complex is usually much higher than that of a single family home or other type of multi-family property. This is due primarily to the larger number of units.
Financing Apartment Complexes
The financing of an apartment complex will differ from that of financing a single family property. In addition, the type of financing will also be dependent upon how much funding will be needed.
Typically, “non-recourse” loans are used in financing commercial properties. This is a type of loan that is secured by a pledge of collateral, which in this case would be the property itself. However, the investor is not personally liable.
Should you default on the loan, the lender would be able to seize the property. But, by law, the lender would not be able to hold the investor personally responsible for paying the remaining balance of the outstanding debt.
In addition, this type of mortgage will also typically require a down payment of between 20 and 25 percent. Therefore, oftentimes those who purchase larger commercial properties such as apartment complexes will do so with partners. This generally helps with the loan qualification process.
Taking the Next Step
While many larger apartment complexes will have on site management, some of the smaller properties do not. In this case, it will be necessary to either manage the property yourself or to hire an off-site property manager.
Hiring a property manager can relieve you of many time consuming duties such as collecting rent and dealing with other tenant issues, as well as the day to day property maintenance issues that may come up.
Interested in investing for income with apartment buildings? For additional information on how the right property management services can make your real estate investment much more rewarding, give us a call.