Buying apartment buildings used to be what people thought of when they were thinking about investing in real estate. However, thanks to the whole flipping phenomenon the popular notion of investing in real estate has become something more akin to fixing up junker houses.
Not that there's anything wrong with fixing up junkers, you make good money. But when you are trying to figure out what is the best return on your time, fixing a junker just does not compare to buying an apartment building.
Let's consider the two, just for a bit of perspective.
1. When you buy an apartment building you have much less competition; you are one of only a few investors in your market going after deals. Chasing flippers you're one of hundreds. Post why? Houses are easy for people to get their heads around, so everyone and their cousin does it. Apartment buildings are more challenging, because of the high dollar figures involved and more details to master, so fewer people take them on.
2. Buying apartment buildings makes you "much" more money. When you fix up a house you get one check one time; when you sell. You might have 100 hours into a rehab deal, and when you sell you net $ 30,000. Nice! However, take those same 100 hours and put them into buying a 50 unit apartment building. Now, not only do you get paid more, your apartment building pays you multiple times. When you close you get cash back from pro-rated rents, you pay yourself a management fee for raising private money for the deal. Each month you receive positive cashflow from the property. Then, 18 months or so after closing, after renovating the units, raising the rents and filling vacancies, you refinance and pull out a six figure, possibly a seven figure check. These are loan proceeds and tax-free.
3. If your goal is to become wealthy, building a multi-million dollar net worth, buying apartment buildings with get you there quicker. You need fewer deals to reach the one million dollar mark (a single deal can do it for you) making it much more achievable.
4. Even though most real estate investors are afraid of apartments because of the big numbers, buying apartment buildings is in fact less risky than buying houses. If any single tenant stops paying rent you still have cashflow coming in from all the other paying tenants in the property to cover your expenses. When a tenant in a single family home stops paying, that's it! You're 100% vacant and personally on the hook for the mortgage, taxes and insurance.
5. Buying apartment buildings allows you to achieve economies of scale, making your per unit expenses lower and cashflow margins higher. Because you can generate more useable income with apartment buildings, it is financially feasible to hire a professional management company, freeing you from day to day management of the property.
6. Buying apartment buildings and managing them effectively provides you and your family with a lifetime of residual income.
As you can see buying apartment buildings provides you with everything you wanted when you first thought of getting into real estate; large lump sums of cash, monthly cashflow that grows over time, the time freedom to really enjoy your life.
Funnily enough, houses can provide few of these benefits, yet 'flipping gurus' tout them as the investment vehicle for your financial freedom.
Do not be fooled. Educate yourself, take action to buy your first apartment building and enjoy the income for the rest of your life.