Apartment complexes: are they worth the investment?

[Westly Blank]

Would buying or building an apartment complex be lucrative? And what are the major drawbacks to investing in an apartment complex? How would someone get investors involved and excited about going in on an apartment complex? Thanks!

[David Thompson]

Hi Westly,

Multi family investing in apartments can be an attractive area.  Depending on size, it may take considerable sums to build or buy an existing apartment.  In some areas of the country new apartments (called class A) may be getting over supplied and expensive to build. Buying into an existing apartment, especially one you can improve through renovations and improving operational efficiency may be a better bet.  This is called value add investing.  These older apartments built let's say anywhere between 1980s thru early 2000 can be ripe for modernizing the interior units, landscape, paint, signage, etc. 

Additionally, you get into a concept of 5 units or more and you are now into commercial real estate w/its own valuation model based on income generation versus residential which is based on comparison of similar properties that sold.  You have more control to add value based on your own creative ingenuity IMO with value add commercial property and can force appreciation better due to this valuation approach and the concept of scale (more units should theoretically lower your cost per unit of overhead if managed correctly).

I would start reading up on multifamily and learning the language and advantages / considerations. Attend local MF meetup groups if they exist in your area to meet local players, potential mentors and partners that know your area well. Here's a couple blogs on why I like apartments and 28 ideas to add revenue and decrease expenses to improve the NOI of an apartment. You can buy small ones yourself, find partners for maybe a bit larger size, syndicate larger deals where you go find investors and pool their money to buy something bigger (understand the SEC rules and get an attorney involved at ground zero) or play as a limited partner in a larger apartment syndication where you are more passive, putting up a smaller amount but allowing the general partner to do all the work of finding, managing and creating returns for you (the investors) while you do what you do best. You can also learn a ton this way too.

As far as returns, I can speak from the syndication side and that it's attainable for a limited partner to achieve 8-10% CoC returns and 18-20% IRR over say a 5 year hold in a growth market, with a conservatively underwritten deal managed by an experienced team.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/54408-28-...

https://www.biggerpockets.com/blogs/9145/54632-28-...