Top Three Reasons I Quit My Job To Focus on Apartments Full-time

June 2nd is a big day in my family. It’s my brother’s birthday--he’s my co-conspirator, collaborator and measuring stick as we’ve spent the last 4 years building a rental portfolio of 72-units. Happy Birthday Mark. But sorry, today isn’t your day, its mine.

Today is a big day for me because June 2nd represents two things:

1) My last day as an employee. I resigned my job as a partner at a technology company recently to focus on apartment investing full time, feeling confident knowing our current portfolio is providing strong cash flow every month. 

2) The closing of our first big apartment complex. I partnered with a mentor of mine and closed on a 202-unit apartment in Ft Worth. This represents the first time we’ve raised money to buy real estate, and nearly triples our portfolio size overnight.

So why would I leave a job that offers flexibility, a $200k+/yr salary and stability for my family?

Simply put, I believe apartments are the ultimate investment, and I simply couldn’t ignore it any longer. Here, I want to share the Top Three Reasons I believe that statement to be true.

1. 1) “People prefer to live under a roof”. Yes, it’s a silly quote to start with—but its true. We’ve seen this play out in our own portfolio first hand-- our units stay rented even as rents go up. Everyone needs a place to live, and not everyone can afford (or wants to own) a home. This isthe ideal time to be investing in apartment buildings, and the Census Bureau is full of stats highlighting why:

1) Home ownership sits at a 50-year low, and has been dropping since 2003—well before the first hints of the housing crisis.

2) Today, there are more renter-occupied homes than owner-occupied homes. That shift took place in 2013, following the housing crisis.

3) Nationally, apartment vacancy rates sit at near record low levels around 4%. So while more people are renting than ever before, apartments are staying occupied—which allows operators to increase rents and ultimately profitability.

This isn’t a trend that will be changing anytime in the near future for a couple of reasons:

First, if a family can’t afford (or is choosing not to buy) a home at a time when interest rates are at an all-time low, do you expect their buying power or ownership attitudes to shift as interest rates go back up? Absolutely not.

Second, Millennials. Already the largest generation in American history, these consumers represent a new paradigm in how and where people live – and they’re entering the marketplace more and more each day. Many Millennials don’t want the hassle or responsibility of owning a home, choosing flexibility and freedom to move around more easily. For those that do want to own a home, they are saddled with student debt, marrying later and having kids later than any previous generation. All of that leads to them renting well into their 30’s, if not forever.

So, if people can’t afford or don’t want to own a home—where are they going to live?

2) Apartment buildings are more efficient to operate and maintain than single family homes.

One of the things we learned along our journey to owning 72-units is that while single family homes are great, the more units you have together, the more efficient the property operates and the greater the investment return. This multiples faster the more units you have together. For us, the light bulb went off when we closed on a package of 8 fourplexes on the same street—the bigger the property, the easier it is to manage. A little counter-intuitive, so let me explain.

The principle is simple; if you have a single family home, you are either 100% occupied of 0% occupied, and vacancies can quickly become financial emergencies. With a fourplex, for example, with one vacancy you’re still 75% occupied and still cash flow positive. Now, multiply that out times 100 or 200 units, and you get the idea. The more units and tenants you have, the better you are able to financially withstand turnover and vacancy.

Another benefit of a bigger property is that you get to spread the big ticket, fixed cost items across multiple units and tenants. Take a roof, for example. The average roof is going to last 15 years, and costs roughly $10,000 to install. Those costs are nearly identical whether that roof is covering one single family home, or an apartment building with 10 units underneath it. Your cost per unit to pay for that roof is a fraction of what it is in single family home—again increasing profitability and investment return. This applies to all exterior walls, parking lots and driveways, complexes with chillers for HVAC, etc.

As we saw this play out across our portfolio, and realized how much greater our Cash-on-cash returns were in the bigger properties, it cemented our belief in large apartment communities.

3) Forced Appreciation. 

From an investor perspective, this is the biggest, and certainly most profitable advantage for apartment communities. They are valued, bought and sold based on the Net Operating Income of the property—you’re basically buying a business. When you buy a single family home as an investment, that home is worth what other people are buying similar homes for in the neighborhood. There is not much you personally can do to increase the value of the investment—it will appreciate (or depreciate) only as fast as the market or neighborhood it sits in go up.

In the apartment space, we have the opportunity to force appreciation by increasing the profitability of the asset in a relatively short amount of time. In fact, our business model is predicated on doing just that. We target and buy apartments that are mis-managed, are in need of repairs or otherwise aren’t operating at a level of peer properties. By quickly improving the property, operations and management of each property, we can manually increase the value higher by increasing the income—raising rents, charging for parking, etc.—and reducing expenses.

There are many other reasons I’m pushing all our chips into the middle of the table and betting on apartments. But these are the big three.

I’d love to list them all out here, but I’ve got to run. I’ve got a birthday cake to decorate and an apartment to reposition.