Multifamily properties can be highly lucrative if you can identify the right opportunity and get involved at a low enough price point. Investors willing to put the work in can create significant cash flows, and potentially generational wealth, by purchasing apartment complexes in coveted neighborhoods and marketing the properties to viable tenants.
You’ll need to do your due diligence before buying an apartment complex to minimize your risk. Looking at financial audit reports, property condition assessments, and market reports ensures you’re buying a complex in a desirable part of Washington, D.C., where people want to live.
Becoming an apartment complex landlord isn’t easy, but your hard work could leave you in an excellent financial position. This guide examines the pros and cons of investing in apartment complexes in the Washington, D.C., area.
What Is an Apartment Complex?
Answering the question of what is an apartment complex is the first step in the investment process. An apartment complex is defined as a group of two or more buildings sitting in close proximity to each other and containing individual apartments.
Each building should have at least three residences, and the complexes are typically managed or owned by the same person or company. This owner will often hire on-site attendants to keep the property running smoothly.
Benefits of Apartment Complex Investment
Purchasing an apartment complex means becoming a landlord with multiple properties to manage. Owning numerous rental units brings clear advantages if you can pull it off. These benefits include the following:
Equity Growth
Your apartment complexes can build equity as you make mortgage payments. These complexes could also increase in value in the time you own them, providing you with a significant payout when you decide to sell.
Leverage
Investing in an apartment complex creates significant leverage. You’ll only have to put 20%-30% down to make the purchase and can finance the rest over a 25-year period. Other investments, like stocks and mutual funds, don’t provide this benefit.
Cash Flow
Landlords often end up generating cash flow from their apartment investment. This benefit provides additional income today while still allowing for equity growth you can access in the future. It’s similar to a dividend-paying stock but with a much more significant upside.
Tax Deductions
Apartment ownership offers tax benefits to landlords. You can make significant income tax deductions for mortgage interest and depreciation, reducing your amount owing. It’s also possible to deduct utility costs and some travel expenses.
Buying an apartment complex can be highly lucrative because of its growth potential. It can also supply immediate income in some scenarios, making it a win-win investment.
Six Issues Apartment Complex Ownership Could Create
Multifamily property ownership in D.C. seems like an easy way to grow your wealth, but it isn’t a perfect solution. You’ll still have to come up with a significant amount of money to make the down payment, and there is some risk. Six problems you could encounter include the following:
1. Tenant Issues
You need tenants to turn a profit when owning an apartment complex, but these residents can also cause you some problems. Renters can damage the apartments, leaving you with repair expenses, and sometimes create sudden vacancies by leaving unexpectedly. You’ll surely encounter some problem tenants in your time as a landlord, adding stress to your life.
2. Maintenance Costs
Maintenance is part of owning any residential property, and apartments aren’t any different. Replacing appliances, HVAC systems, and water heaters is essential and something you’ll encounter every decade or so. You’ll also find yourself buying new windows, painting interiors, replacing carpets, repairing handrails, and completing countless other maintenance tasks over the years.
3. Low Liquidity
You can’t quickly sell an apartment complex if you need the cash. Multifamily real estate deals take months to construct and close, and finding the right buyer willing to make an acceptable offer could take even longer. Your money will be tied up for the foreseeable future if you go this route, so you’ll want to make sure it’s what you want before you begin.
4. Unpredictable Markets
There’s no telling how the neighborhood you buy your apartment complex in will look in 20 years. Things could happen, and the area could be overridden with crime when you want to sell, leaving you with a less lucrative investment than you envisioned. The market is out of your control, and depreciation is a risk you must be willing to take on when buying a multifamily complex.
5. Potential for Liability
You’ll need an insurance policy before allowing any tenants on your property to protect yourself from lawsuits. There’s still a chance you could be liable for crimes or accidents that occur on the property, though, putting you in a challenging financial position. Other investment types don’t come with this risk, making them more viable if this type of thing worries you.
6. Time Investment
Landlords spend an incredible amount of time managing and maintaining their apartment complexes. These properties can become a full-time job, especially if you don’t have the necessary expertise, so you might need some assistance along the way. Many apartment complex owners hire a property management firm to handle day-to-day operations, helping everything run smoothly.
These drawbacks shouldn’t scare you away from multifamily property ownership, but they might convince you to consider the pros and cons before jumping into the market. Understanding where your investment can go wrong helps you make an educated decision on the matter.
Get Help Managing Your Complex
Property management firms can eliminate many potential problems you might encounter after buying an apartment complex. These professionals will vet and interact with tenants, collect rent, handle maintenance, and ensure you have a robust insurance policy that covers you in every scenario, significantly reducing your risk.
Nomadic Real Estate offers property management services in the metro D.C. area. Our experienced team can manage the day-to-day of your apartment complexes, leaving you with a lucrative investment that won’t take up too much of your time. Contact Nomadic Real Estate to learn more about our apartment complex management services.
