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Pros and Cons of Apartment Complex Ownership

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pros consReal estate investors may encounter a wide range of property types. When focusing on the bottom line, a variety of income-producing opportunities might be worth considering. Direct Apartment Lenders highlights some of the pros and cons of apartment complex ownership.

About Apartment Complex Ownership

Typically, a new real estate investor might dip their toes into the water to get a feel for the business. This would entail the purchase of buy-and-hold rental properties or fix-and-flip properties that have minimal repair needs.

 

Seasoned property owners who want to explore highly leveraged income-producing assets may be attracted toward the ownership of an apartment building or an entire apartment complex.

Through the knowledge and experience that an investor gains from owning rental properties, he might decide to pursue large-scale projects that have an above-average influx of cash.

However, there are a variety of advantages and disadvantages of purchasing an apartment complex.

Here are some advantages:

Unlike owning a one-to-four-unit rental property, an apartment building that is fully rented can provide a greater hedge against vacancies. 

For instance, if two tenants decide to forgo renewing their apartment lease agreement, an investor would lose 50 percent of the rental income on a four-unit property. 

Although, an owner of a 10-unit apartment building would still receive 80 percent of the monthly rental income if two of the tenants failed to renew their lease agreements.  

Managing a single location is a major benefit of owning an apartment complex versus managing five or more rental properties that are several miles apart.

 

Here are some disadvantages:

The purchase price and maintenance costs are more expensive for apartment buildings versus for one-to-four-unit properties.

Selling an apartment complex might take longer than selling a one-unit rental property or a duplex. 

An investor may be able to collect rent from a tenant or two without a problem. However, collecting rent from 10 or more tenants might require assistance from a property management company.

Ownership of an apartment complex requires a greater degree of responsibility. Instead of managing the needs of the tenants within a five-unit apartment building, the owner of an apartment complex could be required to maintain satisfactory conditions and services for several hundred residents.

In terms of maintenance, an apartment complex usually needs to employ full-time staff members to keep the grounds clean and to respond to emergencies. 

Several leasing agents may also be required to promote the availability of vacant apartment units and to address the needs of the residents who live within the complex.

While some onsite services may be outsourced to local companies, an apartment owner will need a sufficient amount of cash reserves to help resolve any number of unexpected repairs. 

Property Management Services 

Commercial property owners may become overwhelmed with the ongoing needs for an apartment complex. Hiring a property management service could reduce some of assignments that require a lot of attention, such as rent collections, court filings, marketing, landscaping, maintenance and repairs.

Without a large staff that requires a large payroll and the costs of benefits, an apartment owner may see the pros of utilizing a property management service.

The cons of using a property management service for an apartment complex could be the amount of money that an investor would pay each month for professional support.

Either way, an investor may discover that a reliable staff or a reputable property management company is more practical than a do-it-yourself approach to running an apartment complex.

Financing to Buy an Apartment Complex

Since most investors will use leverage to buy an apartment complex, it is a prudent idea to obtain favorable financing terms.

To select the best mortgage loan to purchase a commercial income-producing property, an investor can speak with a licensed apartment lender.

Good credit is a plus for an investor who wants to buy an apartment complex, while a low-credit score could increase the difficulty level. 

Although, commercial mortgage loans may be available for borrowers with low credit scores, a larger down payment may be required as a compensating factor. 

For example, if an investor with a 750-credit score wants to purchase an apartment complex for $5,000,000, a 20% down payment that is equal to $1,000,000 might be required. 

Whereas, a borrower with marginal credit might be required to make a 40% down payment of $2,000,000 to represent a figure that is twice the amount, when using the previous example. 

Also, there are certain advantages to working with a reputable apartment lender. Experienced lenders who are able to match an investor’s financing needs with the most appropriate commercial mortgage loan are literally worth their weight in gold.

 

Direct Apartment Lenders employs experienced commercial mortgage loan officers who are kind and courteous.   

 

Contact us today for information about our loan programs to finance the purchase of an apartment building. 

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