Invest – Why Invest In Apartment Buildings

The next property I want to talk about is investing in apartment buildings. 

The way you invest in apartment buildings is quite different than investing in residential properties.Β 

Now, when I say apartment buildings, I usually mean buildings with 10, 20, or 30 units or more. The real definition, I guess, from an investment perspective, or from a mortgage perspective, is anything with 4 units or more is considered a commercial purchase. 

The advantage of investing in apartment buildings is that you are not what that the bank looks at when you are trying to get a mortgage or when trying to qualify for a mortgage. What I mean by that is when you look for residential purchases, like single-family homes, or small multifamily homes, they look at your income, they look at your buying capability, etc.

When you are investing in a building with 5 units or more, lenders are looking at the building’s performance. That means they are looking at what are the rents? What are the expenses? What’s the history of the performance of that building? This makes it easier to qualify, as long as you have the right amount of down payment. 

The other big advantage of investing in apartment buildings is the economy of scale.Β 

What I mean by that is it is a lot easier to cash flow because of the number of units you have. It is also a lot easier to distribute the costs of maintaining the building. For example, in larger buildings, you could actually have a property manager on-site to manage the building. 

The reasons why most people shy away from apartment buildings is because of the bigger costs of owning an apartment building

What I mean by that is, the costs of maintaining it, of keeping up the apartment building. For example, if you have to replace the roof on an apartment building, it’s a lot more expensive than if you have to replace the roof on a single-family home. You also have a lot more tenants to deal with. You have a lot more rents to collect, which is a good thing, right. And that’s the idea. That is why you get a property manager in place to do all that. 

With a single-family home, if you had a property management in place, and you’re only bringing in let’s say $1,500 a month you would have to pay a property manager, let’s say, $100 a month. That’s a much bigger percentage than if you had an apartment building and you had a property manager managing the entire property. 

Another thing is you could own the apartment building in a legal entity. So, if you sold you could sell the whole company. 

There are a lot of advantages to owning apartment buildings. The disadvantage is when you go to sell it. It won’t be as easy to sell as a residential property or as a single-family home is to sell. The sale of an apartment building takes a lot longer. 

Okay. Those are the advantages and disadvantages of owning an apartment building.

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