Real estate investing is one of the best ways for people from all walks of life to grow their net worth. For many, investing in real estate (and, as we will see, apartment buildings in particular) has brought them financial freedom and independence. Indeed, the solid historical capital appreciation and regular monthly income mean that property owners can often grow their net worth and revenue simultaneously.
If you want to invest in real estate, you should know that apartment building make some of the best investments. While single-family homes are easier to buy, they have a few downfalls one of them being, if the tenant moves out, you won’t have any revenue, yet you’ll have plenty of expenses. With apartment buildings, you have multiple units, and while you may not consistently achieve 100% occupancy, you also won’t have 0% either. That means more consistent, regular, wealth-building income.
These multi-family units are expensive, so don’t people need to be multi-millionaires to afford one? Nope. Here are seven ways you can invest in apartment buildings!
1. Invest in REIT Specializing in Apartment Buildings
REITs (Real Estate Investment Trusts) are publicly-traded companies that hold and manage real estate properties. They typically have commercial properties with significant revenue (like commercial office buildings), but many also own residential apartments.
When you invest in a REIT, you’re becoming part owner in the company with that real estate portfolio, so, indirectly, you’re buying a piece of real estate. However, aside from picking the REIT you want to buy, you don’t have the flexibility to choose which individual apartment buildings you want to own.
Since REITs are public companies, you can buy them using any brokerage account, including your 401(k). And, since many brokerages let you trade fractional shares now, you can invest in real estate with as little as your brokerage permits! REITs are a fantastic option if you want a quick, easy way to diversify your portfolio.
2. Invest in a Real Estate Syndication
Passively investing in real estate syndications is another popular way to own apartment complexes. Real estate syndications are conceptually quite simple and typically have minimum investments in the $50,000 range. Investors must also be accredited or sophisticated to invest in real estate syndications.
With a syndication, there are general partners and limited partners. General partners spearhead the project, while limited partners are the ones that invest money. General partners work to identify the deal, raise funds, buy the building, improve it, and eventually sell it when the time comes. Limited partners, on the other hand, simply write a check!
Syndication deals are typically five years in length. During those five years, many syndications offer about 8%-10% annually. At the end of those five years, many syndications aim to sell the building for about a 30%-50% profit. As such, with real estate syndication returns it’s possible to double your money in five years of investing through syndication. And, you can pick which syndication you join – so you can find one that supports an apartment project you like along with a group you trust.
This profit potential and low time commitment are two reasons why syndications are so popular.
If you are interested in passive income real estate opportunities make sure to visit our investment page here and fill out your info to be notified on Disrupt Equity’s apartment investment offerings!
Another option for investing in apartment buildings is to use a crowdfunding platform. These platforms are on the rise because they offer a fairly straightforward way to invest in real estate.
With crowdfunding platforms, you pick the projects you want to invest in from a selection on the site. Project owners will post their proposed plan on these sites, and then investors can chip in a certain amount towards it. All accounting, contracts, etc., to ensure investors receive their share of the project is done by the crowdfunding platform.
The significant advantage of crowdfunding platforms is that they make finding real estate projects to invest in trivial. The downside is that projects on these platforms may not undergo considerable scrutiny, and therefore it is easier for people to raise money on these platforms and then disappear.
4. Buy Apartment Buildings With or Without Partners
Of course, nothing stops you from buying an apartment building yourself or finding a group of people to pitch in some funds and buy the apartment.
Buying an apartment complex yourself is a substantial investment and a significant undertaking in terms of financial, legal, tax, and time commitments. However, you will be in complete control of your destiny!
If you buy the building with some partners, you’ll reduce your investment in time and money, but you’ll have less control over the project.
Going this route requires a significant amount of money and is likely not entirely feasible for most people.
5. Invest in a Real Estate Fund
Real estate funds are similar to REITs, but they have some key differences. Fundamentally, they work the same way in that they intend to raise capital to buy multiple apartment buildings. Typically, the fund owners raise this money “blind,” whereby the investors don’t know the details of the underlying properties the fund will purchase but instead rely on the plan and reputation of the fund owners.
These funds typically only accept accredited investors since they are security offerings not registered with the SEC. Additionally, unlike REITs, these funds are private, and there’s no trading these funds on the stock exchange. They also tend to have relatively high minimums.
The rewards, however, can be substantial, and they represent an excellent way to diversify your portfolio since these funds invest in multiple properties at any given point in time.
6. Buy Land and Build
If you’re not averse to taking on a challenge, you could always buy a plot of land, get the necessary zoning, and build a new apartment building. This method can be challenging since it requires significant construction costs and capital. However, if you select the right plot of land and build an attractive set of apartments, you can sometimes hit a home run in terms of income relative to the costs to build the structure.
The downside, of course, is the capital involved and the fact that it is a significant project to manage and requires considerable work!
7. Start a Syndication to Buy Apartment Buildings
Lastly, if you’re looking to invest in large buildings but don’t have the funds (or don’t want to spend the funds) that one of the options above would entail, you can always form a real syndication.
Creating a syndication may sound daunting, but it’s not – if you can find, perform the due diligence, and make deals, you can likely create a syndication without issues. You’ll need a business plan, too, and a plan to purchase the property, distribute returns, and have an exit plan.
One of the most remarkable aspects of starting a syndication is that you’re no longer merely investing in property but learning how to put together successful deals. It requires significant work, and is in many cases is a full-time job, but it can be very profitable!
There Are Many Ways to Start Investing in Apartment Buildings
The above seven ways are some of the best ways to invest in apartments. Of the seven, some are easier than others. The two most accessible options are investing in REITs and syndications. Syndications typically have better ROIs than REITs but require higher minimum investments and also require in most cases, accreditation from investors.
No matter which path you choose, the key is to start investing in real estate. Apartment buildings, homes, commercial buildings – no matter what you choose, these assets will help diversify and strengthen your portfolio!