The Money Making Advantages of Real Estate Investing in Apartments or Multi-Unit Residential Investments

How does a real estate investor build massive passive cash flow, spread their investment risks, effectively use the important tool of leverage, and build substantial equity?

Investing in Apartment or Multi-unit Residential properties is the secret that wealthy real estate investors have found to accomplishing all these important real estate investing goals.

What are the types of apartment or multi-unit properties available to real estate investors, even new investors?

What are the specific advantages of investing in and owning apartments or multi-unit real estate?

Multi-unit properties include a wide range of investment options:

Duplexes, Three Plexes, 4 Plexes and Apartments

Key Advantages of Investing in Apartments or 2-4 Plex Properties

The 10 key advantages of real estate investing in an apartment or Multi-Unit real estate properties are:

1. Higher Income Potential, 2. Lower Risk on Vacancies, 3. Less Competition from other Real Estate Buyers, 4. More Flexible Sellers, 5. Depreciation Tax Shelter, 6. Long Term Financing and Lower Down payment than Commercial real estate, 7. Equity Build-Up, 8. Solid Economic Value, 9. Massive Leverage, 10. Long term Capital Appreciation.

Multi-Unit & Apartmentl real estate has a higher income per square foot than residential single family real estate, or even apartments, and therefore a Higher Income Potential for the investor.

Multi-unit & apartment real estate by its very nature has the advantage of lower vacancy risk, because it always involves two or more units. The vacancy risk with commercial or multi-unit real estate is much smaller than single tenant investments such as a single family home, because the vacancy risk is spread over several units.

For example: One apartment being vacant out of 20 apartments is only a 5% vacancy. For the multi-unit investor, this 5% vacancy is significantly less financially traumatic, than a single family house being vacant, and the real estate investor experiencing a very painful and costly 100% vacancy.

Another point in favor of investing in Apartments or Multi-unit real estate is there is less competition from other investors. This is because some investors are not comfortable in larger investments such as an large apartment. These types of larger real estate investments are out of many peoples' comfort zone.

Paradoxically the owners of apartments or multi-unit real estate are usually more flexible sellers than sellers of a single family home. Apartment and Multi-unit property sellers are not as emotional when selling their property. The sale of most Apartment or Multi-unit Properties is ususally simply a business decision. Apartment or Multi-unit property sellers are in a business frame of mind.

Apartment and Multi-unit real estate sellers are more likely to understand and agree to the request from the Buyer for either 100% Seller financing, or Secondary Partial Seller Financing. These sellers are likely to agree to a partial Seller carry back financing, such as a second mortgage, or second trust deed behind an institutional lender first lien. [In Canada, this is commonly referred to as "Vendor Take-Back Financing."]

Investing in and holding onto multi-unit or apartment real estate provides significant Tax Shelter to the multi-unit investor through Depreciation of the building and improvements. There is depreciation write-off on tghe structure allowed by the IRS, and most States.

The tenants' lease payment or rent provides the apartment or multi-unit owner with the cash to make the mortgage payments, which results in the owner having a nice equity build-up over time.

Investing in apartment or multi-unit properties has the advantage of providing solid economic value. This is because most existing office buildings, retail strip centers, or industrial complexes can be purchased for less than replacement cost, or in other words, the cost to build one new.

Apartment or multi-unit properties real estate enjoy the advantage of financial leverage with long term fixed rate institutional debt. Another option is for the possibility of 100% Seller financing, or a combination of institutional financing combined with partial Seller financing.

Institutional Financing on Apartments and Multi-Unit Residential properties is usually longer term, lower down payment, attractive rates and some FHA financing is avialable for Apartments, plus Two to Four Plexes are viewed as a "Conforming" Residential Loan.

Holding on to multi-unit or apartment properties over the long term will provide the investor with possible Capital Appreciation and increased cash flow through higher rents over time. The increased cash flow can lead to long term massive passive income, with appreciation as the frosting on the cake.

Due Diligence is Essential for Apartment Investments

The due diligence process in multi-unit real estate begins in the initial interaction with the seller, or the Seller's Commercial or Apartment Real Estate Agent or Broker. The due diligence process in apartment or multi-unit real estate is well underway in the contract negotiation phase.

A multi-unit real estate investor needs to clearly identify to the Seller exactly what will be needed to intelligently analyze the potential multi-unit investment. The investor should frame the request for documentation with phrases such as, "in order to make an informed intelligent business decision I will need the following documents . . ."

Generally apartment or multi-unit property owners are more knowledgeable and sophisticated. Start out with a simple request for basic information, such as a current rent/lease roll, copies of all the current leases, and the income and expenses for the multi-unit property for the last two or three years. The more sophisticated the Seller, the less they are surprised or upset by a detailed comprehensive list of items needed for the complete due diligence on the property.

Most Sellers', or their agent's, will give what an investor asks for in a timely manner. Only Seller's who may be hiding something will refuse the buyers reasonable request for information. If the Seller or their agent refuses to provide the information requested, then the potential Buyer should be prepared to just walk away from the deal.

Copyright © 2005-2012 Dr. Howard E. Haller. All Rights Reserved.