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Investing In Apartment Buildings – Pros and Cons

Investing In Apartment Buildings – Pros and Cons

Apartment buildings can be one of the best places to invest your money – even when the economy is going sideways. That being said, there are advantages and disadvantages to every type of investment. In this article, I would like to go over the pros and cons of investing in apartment buildings.

Pros and Cons of Investing in Apartment Buildings

—- Pros —-

1. Predictable Income Source

The #1 reason that I and many wealthy investors choose apartment buildings is they provide a steady source of income. Chosen properly, in a good location and area, an apartment property will provide cash flow month after month.

Businesses come and businesses go – especially in retail, office, and warehouse properties. However, people will always need a place to live.

2. Property Appreciation

The value of an apartment building is based on the Net Operating Income the property provides to the personal investor. The great thing about apartment properties is that you can increase the value of the property – without investing in new siding, windows, carpet, or even paint!

When you increase income, reduce expenses, or both, you will increase the value of your property. Let’s say the average CAP Rate in your area is 10%. If you increase the Net Operating Income by just $1,000 per year, you have essentially added $10,000 to the value of your property. This can be done with a combination of raising rents and reducing expenses – and it can be done on many properties. This is one of the most closely guarded secrets of professional investors.

3. Principal Reduction

Your equity increases every month in apartment buildings – automatically. This is because your tenants are paying down the mortgage on your property with their rents. Every month you receive rents, pay out expenses, and pay the mortgage. With each of those payments, you are gaining equity and increasing your wealth.

4. Taxes

Apartment properties provide one of the best tax sheltered investments available. Because of the way the tax laws work, apartment buildings benefit in two ways: through depreciation expense while you own the property, and you also can sell the property, re-invest the proceeds into a new property, and not pay taxes on the gain. Try that with stocks or mutual funds!

—- Cons —-

1. Property Management

One of the downsides of apartment properties is they do require someone to manage the property. This is probably the biggest reason why investors shy away from apartments. However, when you purchase a property correctly, you should be able to hire a professional property manager and not be involved in the day-to-day operations.

2. Investment Liquidity

Obviously you cannot buy and sell an apartment property like a stock or mutual fund. It takes time to sell when you want to “cash in your chips” down the road. So it is a longer-term investment than other alternatives.

3. Maintenance Issues

This goes hand-in-hand with management as being the main reason investors do not get involved with apartments. Again, maintenance and management can be professionally handled when you purchase the property correctly. The income stream coming in from rents should cover these expenses, and allow you, the investor, time to look for your next deal.

About Richard Alexander

Hi, I'm Richard Alexander a New York City and Trinidad & Tobago based Online Marketing Real Estate Entrepreneur and owner of InnersoulRealtyInc.com. InnersoulRealtyInc.com is a real estate investment education company, offering products, education, and systems based on REAL WORLD applications. We are dedicated to educating and helping homeowners, home buyers, sellers, renters, real estate agents, mortgage professionals, landlords and property managers find and share vital information about homes, real estate, mortgages, and home improvement. The goal is to enable other investors with drive and determination to duplicate successful realtors and achieve real wealth through investing in real estate. This Real Estate Educational Program is designed to help any real estate investors secure unlimited funding for real investment purposes without the use of banks or hard money lenders and without using any cash out of pocket or your own personal credit. Navigate throughout our site and join people all over the world who have benefited from proven methods to help sustain your real estate investment in any economy.
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