Many investors looking to get started in commercial real estate look at investing in apartments. Apartment investing is a great way to begin investing in real estate. This is because apartments are something that we all have had some introduction to and are familiar with.
Apartments are a strong investment because we all understand that “people will always need a roof over their heads”. Getting started investing will take some time – begin with the basics – and you will be well ahead of most investors just starting out.
Benefits of Apartment Investing:
1. Cash Flow
Bought properly, apartment buildings will provide a steady source of income for the owner. If you purchase a building in a good area with good management, your apartments will remain occupied, putting money in your pocket every month. The nice thing is that all of this can more-or-less happen on autopilot because you can hire a property manager to handle the day-to-day activities.
2. Equity Increase
Your equity also increases every single month. How? Because your tenants are paying off your mortgage or commercial notes. It may not be large equity jumps like when you manage the income and expenses. However, every single month your mortgage principal balance is reduced, thereby increasing your wealth. Month in and month out.
This is an area where apartment buildings shine. Because the value of an apartment building is based on the income it provides to the owner, when you increase the net income, you increase the value of the property. Period. It is that simple – you simply purchase properties where you can increase rents and reduce expenses – realistically – while keeping everything properly managed and maintained. Try doing something – anything – to increase the value of your stock portfolio. You have no control whatsoever over your investment.
A big mistake a lot of people make when it comes to investing in commercial investment property is that they forget one simple thing:
Its All About The Math!
Not complicated math either. It really comes down to rents less expenses less any loan payments equals cash flow in our pockets.
Then, add loan principal reduction AND appreciation as icing on the cake of commercial property.
That is Garman Math 101.
Should be your Math too.
Always keep in mind that it is not about the pretty color of the building, not about whether the building has garages or balconies or a TV room or new maintenance free siding…..
Its all about the numbers baby!!
So, your first job in examining a potential “deal” needs to be the numbers. Whether they have a swimming pool is insignificant – it the numbers.
You see, the sad thing is when an owner plows thousands of dollars in improvements into a property and thinks he will get his costs right back. No way. I see this happen all the time. Why? New siding did not increase his net income. It made the property look better but his cash flow is still the same.
Numbers, numbers, numbers…