Investing in Apartments Has Been Life-Changing
In my opinion, multifamily real estate (apartment investing) can be one of the best ways to grow your wealth. So much so, that my wife and I decided to sell our primary residence years ago and put 100% of our equity into apartments, along with the majority of our investment portfolio.
For those of you who follow Robert Kiyosaki and the Rich Dad Poor Dad philosophy, you know that Kiyosaki is famously quoted for saying “your house is not an asset” meaning your primary residence is not an investment, because it doesn’t produce cash flow each month — quite the opposite in fact as you pay for expenses, taxes and upkeep. That is, unless you house hack, which is topic for another day.
Not only does an owner-occupied home leave you less mobile, it also ties up your money so you can’t use it for investments. In other words, the more you pay down your mortgage, the more you trap your investable cash.
A few thoughts on multifamily real estate in 2021:
- 75 million+ Baby Boomers are retiring
- Many of today’s apartment complexes can be converted to retirement communities
- A large number of millennials aren’t buying homes
- Institutional and main street investors are searching for yield in today’s low interest rate environment
Multifamily investing can be a great way to build wealth, while helping fill the need for affordable housing, senior living and millennials choosing to rent by lifestyle choice.
HOW WE INVEST
My wife and I partner with experienced multifamily firms and invest in what’s called a real estate “syndication” or a real estate private placement. This means we, along with other investors, “pool” our money together to purchase large assets that we otherwise would not be able to afford on our own; a 300-unit apartment complex for example. The general partner (or multifamily firm) and their teams will manage the property and renovate the building by adding modern updates and improved amenities such as, in-wall USB ports, smart thermostats, storage lockers, improved landscaping, updating the clubhouse, gym, pool, or covered parking spots; depending on what the property is needing. The goal is to modernize the apartment building to today’s standards and increase the rents to the market level throughout the process.
The value or price of an apartment building is primarily derived from the NOI (net operating income), which is the total collected rents and income minus expenses to operate the property. When the net operating income increases, the value of the complex increases at a multiplier of this number. For example, let’s say you increase the annual net operating income on a property by $100,000 a year and a property in that market sells around a 10x multiple of the NOI. A $100,000 rent increase can bump the purchase price up by approximately one million dollars. This could be higher or lower depending on the market.
Let’s take a 300-unit apartment building as an example. Rents increase by $28 a month, per unit x 300 units ($28 x 300 = $8,400 monthly x 12 months = $100,800). For resale purposes, these $28 rent increases implemented across all units, could result in the property value increasing by nearly one million dollars. This type of value-add is much more scalable compared to a single-family home renovation.
Whether you invest individually in multi-family or with reputable firms, it can be a great way to generate cash flow, while helping improve communities along the way. My wife and I have dedicated the past 6 years to investing primarily in this asset class for these reasons. Cash flow investing can provide the ability to focus more on what you love and the freedom to focus less on what you don’t enjoy. At the end of the day, we all deserve to focus our time and energy on what makes us happiest.
To Your Success,
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.