Misconceptions preventing you from owning an apartment community
Maybe you live in one, or you pass by one on your commute to work. Multifamily apartment communities are located all around us in many major cities. Who do you think owns these apartment communities? Large companies? Wealthy families? For some of them yes. The rest are owned by regular everyday people like you and I.
Have you ever though of owning one of these apartment communities? The good news is that you can. Here are 5 reasons you thought you could not own an apartment community (and why you’re wrong).
It costs too much
Many people desiring to get into real estate investing bemoan their lack of funds. Often, they believe they need to be independently wealthy to start investing. This couldn’t be farther from the truth. Remember, 90% of millionaires built their wealth through real estate, not the other way around.
You may have many untapped sources of capital that may help you to get your start. If you’re really short on funds you can get your feet wet by buying REITs or getting into crowdfunding for only a few hundred dollars or less.
Want to be a little closer to the action? You can also participate in multifamily apartment syndications, the pooling of funds with partners to purchase apartment communities. Regardless of your income level, these options allow you to own tens of millions of dollars’ worth of real estate for only hundreds or thousands of dollars out of your pocket. If that isn’t a great discount I need to shop where you get your groceries.
If that is still too much, be prepared to invest time to secure creative financing and find deals that can be done with no money out of your pocket. Whether that involves an illusive no money down owner financed deal or networking among your peers to raise funds to acquire an apartment community.
Before you have any money, you can educate yourself on how to invest. Join real estate investment clubs, listen to podcasts, attend conferences, read books and blogs like you’re doing now. It’s never too early to start. Commit to a schedule and learn so that when you do have the money you can move quickly and without fear of you next misconception - that it is too risky.
It is too risky
As a rule, the lower the risk associated with an investment, the lower the return. For proof of this, look at the profits you have made on the money sitting safely in your savings account (or under your mattress). If you wish to build real wealth or allow your money to work for you then you must be willing to accept some level of risk.
Often when people say something is too risky, they really mean “I don’t fully understand the risks or the opportunity.” With owning multifamily there are many risks, such as tenants not paying, property damage (weather, vandalism, wear and tear), decline in property value. Depending on how you choose to structure your ownership and financing there may be additional risks such as disagreements between partners or inability to pay off debts.
Understanding these risks and what increases them such as poor resident screening or poor market selection helps to combat these risks. Use best practices for selecting a market to invest in and understanding different classes of property to increase your chances of success. You can also partner with more experienced investors.
If the education or partnerships aren’t enough to ease your fears, dig into the data. Multifamily has proven itself during the great recession and is the closest you’ll get to a recession proof asset. Months into the 2020 pandemic, while other forms of commercial real estate suffered, multifamily was able to maintain both value and profitability.
It is too complicated
If you are new to investing in multifamily apartment communities, it can be challenging to learn all the new terminology and concepts and even how to safely acquire and manage an apartment community. If you feel overwhelmed and start thinking it’s too complicated it’s time to regroup. Remember, multifamily investing is a team sport.
"Remember, multifamily investing is a team sport."
There are few if any people who have the time, skill and capital to independently and successfully manage a sizeable portfolio of multifamily apartment communities. By having a team, you can divide responsibilities between members. This eases the burden on your shoulders and allows you to master whatever role or responsibility you are assigned.
Understanding all the intricacies will take at least months before you feel confident with concepts and years of experience before you can master them. Be patient with yourself and remember you don’t have to know everything to get started.
It takes too much time
If you work a 40-hour week, have a growing family or other responsibilities, finding time to invest can be a challenge. You need time to not only educate yourself but to also search for deals and then manage those deals. After a tiring day it’s easy to put off this voluntary work in favor of relaxing before bed.
If this sounds like you, then maybe a more passive, hands-off means of investing would fit your lifestyle. It would require minimal additional time and carry reduced risk. One of the only true passive real estate investments is being a limited partner in a multifamily apartment syndication. This allows you to invest capital you earn at work into income producing real estate that you can profit from.
Why doesn’t this require any extra time? Well you are investing with a team and some members on this team, the general partners, take on the responsibility of acquiring and managing the investment so you don’t have to devote any additional time to that. The profits are split between you and the other members of the team based on agreed upon percentages.
“One of the only true passive real estate investments is being a limited partner in a multifamily apartment syndication”
You can own a multifamily apartment community
Next time you pass by an apartment community, examine it with a new perspective. Imagine if you were the owner (we now know you could be), what would you do differently? How would you improve the lives of the residents living there? How would you improve the performance and profitability of the apartment community?
These are real questions multifamily owners answer every day. And questions you may have to answer one day too. Allow yourself to be open to possibility of ownership. If you have a few misconceptions about owning a multifamily apartment community, dispel them now and remember: with investing in multifamily via syndications
You can invest affordably
You can invest with reduced risk
You can invest while you’re still learning
You can invest with minimal time commitment