In 2020, more investors are interested in investing in apartment complexes than ever before.
The reason why apartment complexes have risen in popularity over single-family homes is because more people are renting than ever before and they want to have the freedom/flexibility that comes from living in an apartment.
In this article, I will share with you several tips that you can use for investing in apartment complexes.
Tip #1 – Make Sure Investing In Apartment Complexes Is Right For You
One of the first things that you need to do before you get started with investing in apartment complexes is to make sure that investing in a multi-family property is right for you.
Besides the initial capital requirement that will be needed to invest in a multi-family property, owning an apartment complex does require a lot of involvement.
You have to be willing to deal with this paperwork, maintenance, and a variety of other issues.
If your goal is to earn passive income from your apartment complex, you should be prepared to hire an on-site property manager to manage your apartment building for you because a property manager will save you the time and hassle of management.
Let’s say that you’ve decided that investing in an apartment complex is not the right decision to make right now, if that’s the case, you may want to consider investing in an apartment complex through crowdfunding or a Real Estate Investment Trust.
Thankfully, when you choose crowdfunding, or a real estate investment trust, you can have the ability to still invest in an apartment complex but have your investment be 100% passive.
Some of the best real estate investment trusts to invest in 2020-2021 include:
- Market value: $2.8 billion
- Dividend yield: 5.6%
- 5-year annual dividend growth: 5.2%
- 12-month total return: 32.1%
In a sector that’s been soaring, it’s difficult to find a bargain – but SITE Centers (SITC, $14.27) might be one.
SITE Centers is a shopping-center REIT, and that might make you nervous if you’ve noticed nearby shopping malls with vast empty parking lots. But SITE centers own and manage open-air shopping centers, often anchored with a grocery store. Grocery stores aren’t being terribly threatened by the trend toward online shopping (at least at the moment). Yes, Amazon.com (AMZN) is working toward grocery delivery, but so are the large grocery chains.
SITE is among the best REITs for 2020 thanks to several factors. For one: “SITE Centers has a new management team that’s taking advantage of a favorable credit market,” Kuiper says. “They have a three- to five-year turnaround plan, and they are executing well on it.” The company should see 4.2% revenue growth next year, compared to a 39% decline in 2019. It might not be much, but Wall Street loves a turnaround.
Moreover, the 5%-plus yield is appealing, and Morningstar rates it as one of the few undervalued REITs around.
- Market value: $21.1 billion
- Dividend yield: 2.8%
- 5-year annual dividend growth: 7.9%
- 12-month total return: 12.2%
Boston Properties (BXP, $136.75) is arguably the king of office space: It owns prime properties in New York City, Boston, Washington D.C., San Francisco and Los Angeles. It owns 51.9 million square feet and 196 properties, including the Times Square Tower in New York City and the Prudential Center in Boston. It also has 13 other properties under construction, according to S&P Capital IQ.
Office space is economically sensitive, and as the economy has slowed, so have office REITs, which have lagged the average real estate investment trust over the past 12 months. Indeed, BXP shares have delivered a total return of less than half the FTSE Nareit All Equity REIT Index in that time.
BXP is one of the best REITs to buy in a difficult segment of real estate. Boston Properties’ high-quality holdings are a good place if you’re hoping the economy will rev up again – or if you simply want a stake in the nation’s hottest office markets. The rapidly growing dividend is a nice draw, too.
- Market value: $12.8 billion
- Dividend yield: 2.7%
- 5-year annual dividend growth: 6.7%
- 12-month total return: 26.4%
We move from office space to industrial properties with Duke Realty (DRE, $34.77).
The industrial space, in REIT terms, isn’t factories. Instead, they’re distribution centers and logistics facilities that have gone well beyond mere warehouses. These properties are geared toward getting goods to consumers, rather than bulk shipments to stores. Those buildings need complex logistical systems to load trucks, as well as accept and process returns. Furthermore, they often need to be near transportation hubs, such as airports and rail terminals, where land is expensive.
In other words, these companies are the best REITs to buy if you want to leverage the growth of e-commerce.
Duke Realty boasts more than 500 facilities sprawled across 155 million square feet in 20 major American logistics markets. And indeed, the company’s clear tether to the growth of e-commerce has powered a 120% total return over the past five years.
Tip #2 – Determine The Type Of Building That You’re Looking For
Once you determine that you’re ready to get started with investing in an apartment complex, the next thing that you need to do is to think about the type of building that you want to invest in.
It doesn’t matter where you live, there’s always going to be a wide variety of apartment complexes out there to invest in.
Before you get started with searching for an apartment complex, you need to think about the age, location, and number of units that you want to invest in because knowing this information upfront will make it easier to find the exact apartment complex that matches your search criteria.
Besides thinking about the type of apartment complex that you want to invest in, you must also determine the classification of the type of apartment that you want to invest in.
There are a wide variety of apartments out there in the world today ranging from Class A apartments which offer the most amenities, to Class B apartments, which are typically older and have little to no on-site amenities.
Since the economy has been up and down this year, especially in the cities like New York and San Francisco, you may want to consider investing in a Class B or Class C apartment complex.
These types of apartment complexes would be considered to be the middle of the road apartment complexes and hey should yield a good return on investment because most renters typically want to live in either a Class B or C apartment building.
Tip #3 – Remember To Follow Through With Due Diligence
Due diligence is always important when investing in real estate, especially when it comes to investing in apartment complexes because more money may be required to invest in an apartment building, compared to investing in a single-family home.
With the financial commitment involved, you should always be willing to take your time with due diligence because, thoroughly analyzing an apartment complex before you invest in it could save you the time, money and hassle of making a bad investment decision.
Your due diligence should include analyzing the local area to make sure that the economy is strong, reviewing the condition of the building, and verifying the monthly cash flow that’s coming in from the current tenants.
Besides these basic due diligence steps, you should have to take the time to hire an inspector to thoroughly inspect every unit in the apartment complex.
You may also want to hire an attorney as well to tell help you go over the tax returns, leases, and other legal documents from the prior owner of the property just so that you can have the chance to identify if there are any hidden problems or not.
Tip #4 – Finance, Make The Offer And Close The Deal
After taking the time to do your due diligence, if the apartment complex looks like it’s going to be a great deal, you’re going to need to obtain financing (unless you pay cash), make an offer, and close the deal.
The good news about financing in this day in age is that mortgage interest rates are still at rock bottom lows, and the Federal Reserve has indicated that they may stay that way for another three years.
Contact Trier Capital
In this article, I’ve given you a short blueprint that you can use for investing in apartment complexes.
Obviously, there are many more steps involved in this process. If you’re the type of person who wants to invest in apartment complexes but you’re not willing to go through all the steps required investing in apartments yourself, I encourage you to consider partnering with me.
At Trier Capital, We do all the hard work to find and acquire ideal properties, and then oversee asset management after purchase, while our investors sit back, relax, and receive tax-advantaged passive cash flow.
For more information about partnering with my company, contact me today by calling (630) 229-2383 or click here to connect with me online.