If you’re like me, you’re always trying to find the best ways to invest your money. You want to accelerate the growth of your nest egg but do so in a way that also limits your downside. With so many options out there, how do you choose what’s best for you? The answer to this may be different for everyone and will depend on your personal situation and investment goals. I’m not here to tell you what you should invest in. Only you can decide that. However, I want to share a few reasons why I decided to invest in apartment communities and why I enjoy helping others do the same. Here are 5 benefits of apartment investing to consider when looking for your next investment.
#1 – Cashflow
Many apartment investment opportunities will provide positive cashflow from Day 1. Every month tenants pay rent and the difference between the collected rent and the expenses represents cashflow that is distributed to investors. This passive income stream allows you to make money without having to trade your valuable time.
#2 – Appreciation
A well-planned value-add apartment investment will allow for both forced and natural appreciation. Forced Appreciation occurs when the revenue from a property is increased or expenses are decreased, increasing the Net Operating Income (NOI), and causing the value of the property to go up. Appreciation can be forced in a number of ways depending on the business plan of a specific property. These strategies include renovations, improved management, rebranding, adding amenities, and any other way that we can think of to increase income or reduce expenses. Finding creative ways to increase the NOI can help maximize forced appreciation!
Natural Appreciation occurs when the value of an asset goes up over time due to inflation and upswings in the market. Although there may be temporary dips in the market, the overall value of real estate has gone up over time. I don’t like to count on natural appreciation when evaluating an investment, but it does make for a nice bonus.
#3 Control of Value
The value for commercial multifamily properties (5 units and up) is determined differently than single family and small multifamily homes (1-4 units). Instead of the value being determined by comparable sales, the value for commercial real estate (including apartment buildings) is determined by the income the property produces.
The value is based on two factors: 1. the Net Operating Income (NOI) and 2. The Capitalization Rate (Cap Rate). Value = NOI/Cap Rate
Net Operating Income = Gross Income – Operating Expenses (not including debt service)
Capitalization Rate is based on the asset class, market, submarket.
So, if the annual NOI of a property is increased by $100,000 and the Cap Rate is 5%, the value of the property is increased by: $100,000/0.05 = $2,000,000
The advantage to the value being determined by this method is that you have more control over the value of your property. By increasing revenue or decreasing expenses, you have a direct impact on the value of the asset.
#4 – Demand
For years, the number of renters has been on the rise as fewer people choose to own homes. This has increased number of potential tenants looking for a place to call home. This has raised the demand for multifamily housing, driving up rent prices and occupancy rates.
#5 Resiliency
While there is risk in any investment, commercial real estate has historically been one of the most stable assets during recessions. Unlike residential houses, the value of apartment buildings is tied to the NOI. That means if people continue to pay rent, the value will remain stable.
Thanks for reading!
If you’ve found this helpful, visit https://goldribboninvestments.com/ to learn more about how we help others invest in real estate without having to become a landlord. We genuinely hope you start your journey for financial freedom today. You and your family deserve to live a life that provides unlimited amounts of joy, and real estate can help you get there if you take action. Everyone deserves to live a life full of Freedom, Wealth, and Impact. Schedule a phone call and let’s determine if we can help.
Adam Lacey
Managing Member at Gold Ribbon Investments
Email: [email protected]
