Ready to grow your portfolio? Find apartment buildings for sale. With high demand and low supply, apartments can be lucrative investments in 2022.
Table of Contents
- What Is an Apartment?
- Apartment Buildings vs. Condominium Complexes
- Why You Should Invest in Apartment Buildings for Sale
- Challenges of Investing in Apartment Buildings for Sale
- How to Find Apartment Buildings for Sale
- Top 10 Cities to Invest in Apartment Buildings for Sale
- Invest in Apartment Buildings Through Mashvisor
Most new investors prefer to start building their investment portfolio with a single-family home. Investing in single-family units is an excellent start because they are more affordable, simple, and easy to manage. It is the type of investment property that can help you learn the ropes, especially if you plan to invest in traditional rentals.
However, as you become more experienced with real estate investing, you’ll also be ready to grow your portfolio. Adding multifamily homes and apartment buildings to your investment portfolio is a good idea. While some investors are apprehensive about investing in more prominent properties like an apartment complex, there are many opportunities for earning better profits in such types of investments.
What Is an Apartment?
An apartment is a residential unit that is part of a building or multi-unit dwelling and is rented out to tenants. The entire apartment building is owned by the same landlord or managed by the same property manager. Apartments are usually rented out for the long term; however, some units in an apartment building can also be utilized as vacation rentals. The owner or property manager is in charge of the maintenance and upkeep of all the units.
An apartment unit is located in a building. The renters usually access the same entrance and share common areas and amenities like a gym, pool, parking spaces, and hallways. Investors looking for apartment buildings for sale usually prioritize a property that offers the basic amenities that renters need.
However, if you prefer to invest in a luxury apartment, the more facilities the property offers, the better. It is because owners of luxury apartments that offer more amenities like a gym and swimming pool can charge their renters more.
Apartment Buildings vs. Condominium Complexes
The difference between apartment buildings and condominium complexes is the type of ownership. An apartment building is owned by one person or company, and the apartment units that are part of the building are rented to tenants. The apartment building owner pays its property taxes, not the renters.
A condominium usually shares the same structure as an apartment; however, the units are sold to different individuals instead of being rented out. A condominium complex is built by a developer; each unit is sold individually to different buyers.
When you buy a condo unit, you become the owner of the unit, and you are liable to pay for the unit’s property taxes. However, you do not own the common areas of the condominium building. Usually, condo unit owners pay association dues for the use of common areas and facilities.
Why You Should Invest in Apartment Buildings for Sale
While most investors believe that investing in apartment buildings is not an easy process, such a type of investment strategy can give you a lot of potential for profit. If you invest in a single-family home, you’ll only manage one unit. However, you’ll also earn a stream of income from just one property. If you really want to start a rental property business, investing in apartment complexes is a better idea.
Here are seven reasons why you should invest in apartment buildings for sale:
1. High Rent Demand
Most real estate markets in the United States are suffering from low inventory. However, in some markets, the population keeps on rising, which also means that the demand for housing increases. When the demand for housing increases but the supply remains low, residents will be left with no choice but to find a property to rent instead.
If you invest in multifamily apartment buildings, you will not only cater to one renter, but you can serve several renters at a time. If you choose a good location where the price to rent ratio is moderate to high, there are plenty of opportunities for traditional rental owners to get their properties occupied. For instance, the current price to rent ratio in Minnesota is 18, which is considered moderate. It means that if you invest in apartment buildings for sale MN, you can expect moderate rental demand and profitability.
2. Multiple Income Streams
Do you know the difference between investing in a single-family property versus an apartment complex? When you own single-family income property and your tenant suddenly stops renting, your property will be left vacant and not earning until you can get it occupied again. On the other hand, investing in an apartment building can give you multiple income streams. If one unit gets vacated, your income flow will still continue because there are still other tenants from other units.
When you invest in an apartment building, it is unlikely that all your units will be vacated at once. Moreover, you can earn other forms of income with an apartment compared to a single-family home. For example, you can charge a separate fee for parking and other amenities like a gym or pool. You can also start a laundry service business within the property for additional income.
However, it is important to be cautious in choosing a location for your income property, as it can significantly affect your profitability. When looking for an apartment complex for sale, make sure to study the rental market trends in the area. Understand the demand versus the available properties for rent. It’s also essential to research your competition to know how you can increase your occupancy rates.
3. Stable Cash Flow
Since there is a high demand for apartment rentals and people will always need a home to stay in, you can expect to see a strong and stable cash flow if you invest in apartments. For traditional rentals, the average lease term is usually 12 months. It means that if you rent your apartment units as long-term rentals, you can be assured that they are occupied for 12 consecutive months.
As mentioned, your rental income won’t necessarily stop altogether when a tenant moves out. During the transition period when your tenants move out, you can also rent out your units as short term rentals while waiting for a new long-term tenant. After all, there are many renters who are looking for a studio apartment for rent for only a few months.
In addition, a slight rental increase across your apartment complex can significantly improve your cash flow and provide a higher return on investment. To take advantage of the increase in rentals, make sure to find apartment buildings for sale in places where community improvements are expected to happen in the near future.
4. Tax Benefits
Another essential reason multifamily apartment buildings for sale make great investments is the US tax laws that are favorable to real estate investors. If you invest in an apartment, you can reduce your tax liabilities through no-limit mortgage interest deductions. You can also utilize depreciation accelerations to reduce your taxable income.
To take advantage of the tax benefits for real estate investors, it’s recommended that you should work with an experienced tax professional to help you with cost segregation and depreciation. It can help you identify your taxable deductions, thereby decreasing your taxable gains and maximizing your rental profits.
Related: Tax Season 2022: Guide for Real Estate Investors
5. Asset Appreciation
Many investors are buying apartments for sale because they can force asset appreciation. When you’re investing in single-family homes, your investment property will appreciate based on the comparable properties in the same location. However, with an apartment complex, you can increase the value of your property based on the rental income it generates.
You can also add value to your property by adding amenities and providing essential services like laundry and security. The more amenities you provide, the more valuable your property becomes and the higher the rent you can charge. Further, you can offer additional features like cafes and vending machines, which can help increase the asset value of your apartment building and improve its cash flow.
6. Consolidated Property Management
Investing in apartment buildings for sale allows you to consolidate outsourced property management services since all the units being managed are just in the same building. On the other hand, if you invest in several single-family homes, it would not be cost-effective to hire a property manager to manage all your properties, especially if they are in different locations.
Since the operations are centralized, it would be more feasible for the property manager to handle the day-to-day controls and maintenance checks. Additionally, apartment investing provides a more substantial monthly income, allowing you to work with a third-party property manager without the need to cut your margins significantly.
7. Building a Large Portfolio
Multifamily units and apartment buildings are the best options if you want to build an extensive real estate portfolio. It is much easier to acquire an apartment building with 20 or more units than to buy 20 single-family properties. It is more time-efficient and cost-effective to purchase and manage one building with multiple units than to buy and manage several single-unit properties.
Building an investment portfolio consisting of single-family houses takes more time and effort. You need to deal with different sellers, conduct separate inspections for each property, and apply for separate loans to finance each purchase. If you do not want to go through such a lengthy process to build your portfolio, a quick way to do it is to buy apartment complexes instead.
New investors consider buying a fourplex or a four-unit apartment building for sale as a start. But if you are financially capable of investing in an apartment building with more units, it would be the better option. It is because an apartment with more units can help you build an extensive portfolio in no time.
Are you ready to invest in apartment complexes? Mashvisor can help you find the best investment property in your chosen location. Schedule a demo now.
Challenges of Investing in Apartment Buildings for Sale
While there are several good reasons why investing in apartment complexes is a good idea, there are also potential challenges and risks that you should be aware of. Before buying any of the apartment buildings for sale, it’s crucial to be aware of the possible downsides associated with apartment investing, such as the following:
- Low supply: The consistently low inventory of apartment buildings is one of the most difficult challenges investors face. Aside from low supply, it’s also taxing to find a perfect apartment property in a good location where demand is consistently high.
- Financing difficulties: There are many types of loans available for multi-unit properties, including conventional mortgages, government-backed mortgages, portfolio loans, and short-term loans. Nonetheless, funding an apartment purchase can still be challenging for many investors, especially new ones. Lenders are usually reluctant to approve a mortgage for investors with less experience because of the risks involved. Investors need to prepare a large sum of money as a downpayment, and they should demonstrate a good credit standing to qualify.
- Increased management needs: Because you will be handling not one but several units and tenants, you need to spend more time managing your rental property. It can easily be remedied by hiring an efficient property manager who will handle the operations for you. However, if you are only starting, it may not be financially practical to hire a property manager right away.
- Higher cost of maintenance: Apartment buildings are typically more costly to maintain compared to single-family homes. Aside from the need to pay for the maintenance of several units, most tenants of studio apartments belong to the student and young professional housing sector. Considering their lifestyle and age, apartment landlords expect inevitable and frequent property damage.
How to Find Apartment Buildings for Sale
Investing in a multi-unit apartment is a great way to build your real estate investment portfolio and earn a good rental income. If you are ready to venture into apartment investing, finding apartment buildings for sale is the first challenge that you should surpass. To help, we’ve listed a few tips to make the process easier for you.
1. Know Your Preferred Location
Where you plan to invest is an important factor that can make or break your rental business. Before you decide on your location, you need to do your research first and understand how the rental market performs in certain areas. It’s also important to know the real estate trends within particular neighborhoods to identify investment potential. For example, if you’re planning to invest in New Jersey, know the NJ real estate market first before buying apartment buildings for sale New Jersey.
2. Identify Your Budget
Knowing how much you are willing to invest is essential to make your apartment search a lot simpler. You can easily filter properties that are within your budget, so you won’t need to waste time inspecting those you can’t afford. When setting a budget, make sure to also factor in your possible mortgage and closing costs. More importantly, consider your available cash on hand for your downpayment.
3. Consider the Risks
When considering risks, you must consider the size of the apartment and how many units you are willing to manage. You should also take into account the property class you want to invest in. For instance, you might want to look for class B buildings or higher if you want to limit your risks. But if you are interested in distressed properties, you should consider finding class C apartment buildings.
Related: The Complete Guide on How to Access Off Market Properties in 2022
4. Use a Real Estate Analytics Website
When actually finding an apartment complex to buy, many investors will go online to search “apartment buildings for sale near me.” However, it will only generate unfiltered results. Others choose to work with licensed real estate agents so they can get MLS access, and the process can be costly because you need to pay the agent’s fee.
The good news is that even if you are not working with a licensed professional, you can still access a wide database of properties available for sale. You can do this through a real estate analytics website like Mashvisor. Mashvisor’s Property Finder tool allows you to search for income properties based on your chosen location, budget, and preferred property type.
Mashvisor’s Property Finder tool allows investors to search for income properties based on their chosen location, budget, rental strategy, and preferred property type.
Top 10 Cities to Invest in Apartment Buildings for Sale
If you want to find the best apartment building for your next investment, you should consider several factors. First, you should check the real estate data and analytics to see the rental trends in your preferred location.
Consider the cash on cash return to know if a particular investment property will generate good returns. You should also take a look at the price to rent ratio if you are investing in traditional rentals. It will help you know whether residents are most likely to rent a home than buy one. Lastly, if you plan to rent your property as a vacation rental, you should also take a look at the occupancy rate.
Top 5 Cities for Traditional Rentals
According to Mashvisor data as of May 2022, here are the top five cities that are best for traditional rentals based on traditional cash on cash return. Please note that the rental income mentioned here is per unit, not for the entire apartment building.
1. Kearny, AZ
- Number of Listings for Sale: 5
- Median Property Price: $164,580
- Average Price per Square Foot: $111
- Days on Market: 109
- Number of Traditional Listings: 0
- Monthly Traditional Rental Income: $1,670
- Traditional Cash on Cash Return: 8.42%
- Traditional Cap Rate: 8.83%
- Price to Rent Ratio: 8
- Walk Score: 26
2. Logan, AL
- Number of Listings for Sale: 6
- Median Property Price: $170,750
- Average Price per Square Foot: $160
- Days on Market: 79
- Number of Traditional Listings: 1
- Monthly Traditional Rental Income: $1,579
- Traditional Cash on Cash Return: 7.79%
- Traditional Cap Rate: 8.15%
- Price to Rent Ratio: 9
- Walk Score: 0
3. Saxonburg, PA
- Number of Listings for Sale: 9
- Median Property Price: $113,133
- Average Price per Square Foot: $160
- Days on Market: 58
- Number of Traditional Listings: 1
- Monthly Traditional Rental Income: $829
- Traditional Cash on Cash Return: 7.77%
- Traditional Cap Rate: 8.79%
- Price to Rent Ratio: 11
- Walk Score: 38
4. Callaway, MD
- Number of Listings for Sale: 5
- Median Property Price: $262,600
- Average Price per Square Foot: $153
- Days on Market: 47
- Number of Traditional Listings: 3
- Monthly Traditional Rental Income: $2,457
- Traditional Cash on Cash Return: 7.76%
- Traditional Cap Rate: 8.00%
- Price to Rent Ratio: 9
- Walk Score: 32
5. Wilmington, VT
- Number of Listings for Sale: 9
- Median Property Price: $570,533
- Average Price per Square Foot: $302
- Days on Market: 79
- Number of Traditional Listings: 2
- Monthly Traditional Rental Income: $5,357
- Traditional Cash on Cash Return: 7.61%
- Traditional Cap Rate: 7.72%
- Price to Rent Ratio: 9
- Walk Score: 54
Top 5 Cities for Airbnb Rentals
Below are the five best cities for Airbnb rentals based on Airbnb cash on cash return, according to Mashvisor’s data as of May 2022. Keep in mind that the Airbnb rental income is for each unit, not for the entire apartment building.
1. Lincoln Park, MI
- Number of Listings for Sale: 10
- Median Property Price: $154,109
- Average Price per Square Foot: $110
- Days on Market: 78
- Number of Airbnb Listings: 45
- Monthly Airbnb Rental Income: $2,468
- Airbnb Cash on Cash Return: 9.65%
- Airbnb Cap Rate: 10.17%
- Airbnb Daily Rate: $103
- Airbnb Occupancy Rate: 65%
- Walk Score: 80
2. Bloomfield, CT
- Number of Listings for Sale: 13
- Median Property Price: $260,867
- Average Price per Square Foot: $167
- Days on Market: 83
- Number of Airbnb Listings: 5
- Monthly Airbnb Rental Income: $2,915
- Airbnb Cash on Cash Return: 9.62%
- Airbnb Cap Rate: 10.13%
- Airbnb Daily Rate: $199
- Airbnb Occupancy Rate: 64%
- Walk Score: 53
3. Walland, TN
- Number of Listings for Sale: 15
- Median Property Price: $1,061,307
- Average Price per Square Foot: $362
- Days on Market: 69
- Number of Airbnb Listings: 21
- Monthly Airbnb Rental Income: $3,707
- Airbnb Cash on Cash Return: 9.54%
- Airbnb Cap Rate: 9.82%
- Airbnb Daily Rate: $242
- Airbnb Occupancy Rate: 57%
- Walk Score: 3
4. Molalla, OR
- Number of Listings for Sale: 9
- Median Property Price: $969,989
- Average Price per Square Foot: $433
- Days on Market: 103
- Number of Airbnb Listings: 12
- Monthly Airbnb Rental Income: $5,521
- Airbnb Cash on Cash Return: 9.53%
- Airbnb Cap Rate: 9.71%
- Airbnb Daily Rate: $141
- Airbnb Occupancy Rate: 66%
- Walk Score: 72
5. Marrero, LA
- Number of Listings for Sale: 5
- Median Property Price: $270,960
- Average Price per Square Foot: $120
- Days on Market: 84
- Number of Airbnb Listings: 1,539
- Monthly Airbnb Rental Income: $4,886
- Airbnb Cash on Cash Return: 9.46%
- Airbnb Cap Rate: 9.68%
- Airbnb Daily Rate: $239
- Airbnb Occupancy Rate: 56%
- Walk Score: 64
Invest in Apartment Buildings Through Mashvisor
Once you’re ready to invest in apartment buildings, you can start searching for apartment buildings for sale online. However, if you want to make your search easier, Mashvisor can help you find the most profitable investment property based on your preferred area and budget. Our tools also allow you to filter your results based on property type, rental income, cap rate, and cash on cash return.
Mashvisor’s rental income calculator allows you to obtain a general overview of the property’s comparable rental income depending on your preferred rental strategy. It also provides accurate estimates for the expenses so you will know how much potential income you can earn. Of course, you are allowed to input your own expenses and financing figures to see more personalized results.
Subscribe to Mashvisor to start your investment property search.