The Pros and Cons of Investing in an Apartment Complex

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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.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.