Apartments - The Path To Real Estate Wealth

Look at it this way. Did you get attracted to real estate by the idea of being a landlord, or a project manager who fixes properties up. Not likely. Real estate looked really good to you because it seemed like it was a way to make a lot of money reasonably quickly, that you could actually understand.

Sure there’s nothing complicated about the general concept; you buy cheap, renovate, and sell high. When you get in the saddle though there are a lot of choices to make. Like, what particular real estate niche are you going to do. Rehabbing houses? Owning and managing mobile home parks? Flipping notes? Flipping houses? Maybe owning commercial property like strip malls, or office buildings? The list goes on.

Which is going to be your vehicle? Which will you specialize in, if you specialize at all?

When you do choose one as your wealth vehicle, you discover there is a lot of knowledge to master, a lot to be good at.

Given this is the case it’s no mystery many investors lose focus and end up making a lot less money from their real estate endeavors than they want. Or if they do make some money they work hard for it. Not what they signed on for.

There are many ways to profit in real estate, but when you beak it down and look at what gives you the greatest leverage to make the most money, with the least risk, taking the least amount of your time to do it, nothing comes close to apartment buildings.

When you put apartments side by side with other real estate profit vehicles, they really don’t hold a candle to apartments. Especially the most popular; houses.

Flipping houses is very popular. There are TV reality shows about it, everyone wants to do it. On the face of it, it’s very simple, but it’s massively over-exposed and as a result wickedly competitive.

Try flipping apartments. Wait … can you even do that?

Of course you can, it’s real estate just like houses are. And what would you rather make; $5,000 from wholesaling a house, or $50,000 from wholesaling an apartment?

Tough choice.

But that’s only the beginning. When you hold apartments for the longer term it gets even better. By their nature apartment buildings are multi-family properties, so unlike houses apartments have multiple families getting up and going to work each day to earn money to pay the rent. These multiple families in the one building create one of the greatest benefits of apartments … economies of scale.

Because your property expenses, and your mortgage are spread out over multiple sources of income from your tenants, the per unit cost of each ends up being lower. So when combined, your multi-unit building generates more income per dollar of mortgage debt (and fixed expense) on the property than a house every could. And the more units in the building the greater you economies of scale.

As a result apartments generate more net income each month than individual houses can ever produce. And because there is much more gross income being produced by an individual apartment building, there is money available to hire professional property management to manage the building.

This is where houses just don’t compare any more. Once you have 10 or more houses, even though they may be lease-optioned out to tenant-buyers, you don’t have a life any more. The rents you collect from your houses only just covers your mortgages, taxes and insurance, let alone having any left to pay a manager. You are the landlord to those houses and that is that.

And what happens when you have a vacancy in one of your houses? It’s you on the hook for 100% of the mortgage payment until you get another tenant-buyer in the house.

Fun.

In your apartment building, a vacancy means your gross income drops a little that month, and your net positive cashflow will be a little less, but it is your property manager’s job to fill the vacancy.

When you invest in apartments you are truly an “investor”, not a landlord. You manage your managers to increase the income of the property as time goes by.

Another key difference between houses and apartments is how they are valued. Houses are valued by comparable properties, apartments are valued by the income they produce. As you rehab units, fill vacancies, raise rents, you increase the value.

Over time, managing your apartments for maximum income you can increase the value of the property 2-3 times within a few years; something that is rarely possible with a rental house. Besides, which check would you rather receive; $50,000 after 6 years when your tenant-buyer finally cashes you out, or $500,000 after 18 months after getting all your units rehabbed, rents raised, and vacancies filled.

When you take the time to seriously look at the benefits of investing apartments, it’s hard to understand why anyone would even want to buy a house … even one time.

The reason is, of course, fear. A beginning investor can get their head around a house, it’s very familiar. The numbers are comfortable.

But seeing themselves as the owner of a building that is worth in excess of one million dollars … “well, that sounds a little dangerous”. It’s hard for a beginning investor to identify with. The numbers are not comfortable.

The secret is though, apartment investing is less competitive, lower risk, and dare I say it, easier than buying houses. The same work you would apply to buying a house, applied to an apartment building nets you 10, 20, 50 times more.

Put your misconceptions aside, apartments truly are the surest way to real estate wealth.