While owning apartment complexes may come with challenges, the benefits often make it a highly rewarding investment. It’s easy to forget these advantages amid the day-to-day headaches of ownership, but it is important to remember why these properties were purchased in the first place. Below are some key advantages of owning apartment complexes:
- Consistent ReturnsMultifamily properties typically offer less risk than stocks, but more than bonds. With effective management, smart acquisition strategies, and efficient capital improvements, they can deliver consistent returns that often outperform traditional investments like stocks and bonds.
- LeverageFinancing with debt (using other people’s money) allows investors to purchase properties with less capital upfront. This frees up cash for additional investments, creates reserves for future ventures, and often results in higher cash-on-cash returns, or internal rates of return, compared to all-cash deals.
- Inflation ProtectionRent increases typically follow inflation, offering a natural hedge. Real estate is also a tangible, physical asset that holds value over time, providing further protection against inflation.
- Higher Returns than Other Asset ClassesOver the last 30 years, multifamily properties have delivered the highest annual returns among commercial real estate asset classes. Unlike longer-term leases in office, retail, and industrial sectors, multifamily leases often roll over annually, allowing for rent adjustments in response to market changes.
- Tax BenefitsDepreciation and cost segregation strategies allow investors to significantly reduce taxable income. Residential properties depreciate over 27.5 years, compared to 39 years for commercial properties. Additionally, mortgage interest payments are tax-deductible, and gains from sales can be deferred through a 1031 exchange.
- DemandWhile supply and demand can fluctuate, I always go back to the basic principle that people always need a place to live. Unlike other asset classes, multifamily properties maintain consistent demand, especially with the growing challenges for first-time homebuyers who are staying renters longer than before.
- DiversificationOwning an apartment complex provides built-in diversification. Unlike single-tenant properties, where vacancies or non-payment can significantly affect cash flow, multifamily properties rely on multiple tenants, reducing risk and stabilizing income.
- Lower Costs for Maintenance and RepairsManaging maintenance, repairs, and renovations is often more cost-effective in a multifamily setting. Bulk purchasing of materials and shared service contracts (e.g., landscaping, pest control, HVAC) reduce costs compared to managing multiple individual properties.
- Pride in Ownership and Community ImpactApartment ownership provides a sense of pride and allows owners to directly contribute to their communities by offering market-rate and affordable housing. It also offers more flexibility than traditional 9-5 jobs, allowing owners to travel or spend time with loved ones while the property generates passive income and appreciates in value.
- AppreciationOver time, apartment complexes—especially in high-demand areas—tend to appreciate in value. This can be realized through property sales or refinancing, depending on the owner’s goals.
As you can see, there are many benefits of apartment ownership, all of which can help create generational wealth.
Please reach out to discuss!
Jordan Lester, CCIM, MBA joined SVN Cornerstone as a Commercial Real Estate Broker in 2022. Jordan specializes in advising clients with the acquisition and disposition of multifamily investment properties. With a primary focus in Spokane County and an expert understanding of the latest market trends, Jordan is committed to maximizing his client’s financial goals to achieve their real estate objectives. Jordan began his real estate career as a broker’s assistant for three years with SVN Cornerstone, which gave him valuable knowledge and experience to jumpstart his career as a broker. To get in touch with Jordan, email jordan.lester@svn.com or call 509.496.6922