What are the pros and cons of owning an apartment complex? Owning an apartment complex pros and cons essentially boils down to risks versus rewards. However, there are many aspects to owning an apartment complex which we will now explore in this infographic.
Pros of owning an apartment complex
- Multiple income streams
You will receive more income streams from an apartment building than from a single-family home. This helps you better withstand occasional vacancies.
- Building Equity
The multiple income streams can provide the cash flow necessary to pay down the mortgage. This increases your equity in the apartment complex.
- Easier Financing
Lenders are more willing to finance apartment complexes because of the strong monthly cash flows from multiple sources.
- Tax Advantages
The current tax laws are very favorable to commercial property owners. The qualified business deduction of 20% is a great incentive for owning an apartment complex. Of course, all your expenses are deductible, either immediately or through deprecation.
- Capital Appreciation
Your apartment complex should reward good management with value appreciation. One reason is the potential for higher rents over time. If you approve the reputation of an apartment complex, your vacancy rate should decrease accordingly.
- Growing Your Real Estate Portfolio
Buying an apartment complex quickly bulks up your real estate holdings. Many experts recommend that you hold up to 20% of your investment assets in real estate.
- Economies of Scale
If you employ a property management firm, you should spread its costs over the number of units you own. Clearly, property managers can charge less if they manage multiple units in a compact area. Consequently, this reduces the overall impact of fees.
Cons of owning an apartment complex
If you choose to take landlord duties, expect to devote much time to your property. Your attitude and expectations will determine whether this is a good thing or bad.
- External Effects
You can’t keep a neighborhood from changing, sometimes for the worse. This can depress your investment and lead to loss. It’s up to you to be aware of neighborhood dynamics before you purchase an apartment complex.
- Limited Liquidity
It takes time to sell your apartment complex. You can’t simply turn your investment into cash overnight without risking a potential loss.
- Unreliable Tenants
Tenants who don’t pay on time and/or break the rules can be a real headache and eat into your profits.
- Unexpected Maintenance Costs
Things break. It’s a good idea to have plenty of insurance, especially on recently purchased appliances and so forth.