Once you’ve gotten some experience with single or multifamily homes you may be ready to begin investing in larger residential properties. The tenant population of such properties can be extremely diverse, with everything from singles and newlyweds, to retirees and empty nesters. This type of investment is most often (but not always) undertaken by individuals with multiple years of investment experience, which typically means they would be in their 50’s or 60’s.
When you begin to invest in larger residential properties, such as high-rises, the financing environment changes substantially. You will likely need to have at least a 20 percent down payment, and possibly more. The bank may also look at your previous experience as a property manager before approving any loans. This can make it more difficult to buy a larger building, unless you have substantial capital and experience with smaller units, or a property management company that you can work with.
Apartment properties can be divided into several categories: garden apartment complexes, townhouses and low or high-rise apartment buildings. The value of investing in one over the other will likely vary depending on the specific circumstances of each investor. For instance, a more conservative, risk-averse investor may prefer a high-rise building. Those looking for a higher rate of return on cash invested than a high-rise apartment building might decide to purchase a garden apartment complex.
Garden Apartment Complexes – These usually consist of groups of three story walk-up structures with up to twelve apartments per building, or rows of apartments similar to townhouses. A garden apartment complex may, however, have as large a number of units as a high-rise structure, though they’re typically spread between various buildings over several acres of land. Because they’re often (but certainly not always) small and more management intensive, garden apartment complexes usually sell for lower relative prices, giving a higher rate of return in comparison to other properties that are easier to manage. Because of the sprawling nature of this type of property you’ll probably need to hire and manage staff to handle the landscaping and repairs.
High-Rise Complexes – These can be defined as elevator buildings with many floors, and many apartments in each building (if there are multiple structures). Typically, high-rise buildings are constructed in strategic locations where land is very scarce and therefore expensive. Thus, the higher land costs are divided across many units, providing an economically feasible cost per unit. Of course, the rents and net income are nevertheless commensurate with the high land and construction costs. High-rise apartments offer economy of scale; in other words, because everything is in one building (such as the electrical and plumbing systems), maintenance repairs and management functions are easier to accomplish and keep track of. Therefore, they’re frequently easier and less expensive to operate on a per-unit basis than more sprawling complexes.