There is a saying in real estate that you make your profit when you buy and get your cash when you sell. When deciding whether to invest in houses or apartment buildings, be aware of the differences when it comes to creating value. Investors are looking for a good return on their money. Make sure you keep this goal in mind and don’t get caught up with other aspects of real estate.
One broker said that apartments are real estate and houses are feel estate. The difference is that the value for apartments is based on numbers. The value of single family houses is based on a number of subjective attributes like wallpaper, carpet, paint, location, and many other factors you can’t control.
Apartment values, on the other hand, are based on the numbers and the net operating income. The more net operating income you generate, the more money you can put in your pocket when you refinance or cash out. Multifamily real estate investors have a larger degree of control over the revenue and expenses of their real estate than investors in houses. Apartment investors can estimate the value up front and even predict the value of the property if certain changes are made. For instance, if the owner of an apartment building raises the rent by $10, he can know exactly how much money will be coming in each month.
Single-family investors have to play more of a guessing game. An investor could spend several thousand dollars replacing carpet in the hopes of increasing the value of the home only to discover that the next potential renter hates carpet. The value of upgrades is subjective, and it’s difficult if not impossible to predict what will really add value and attract tenants or buyers.
Clearly, investing in apartment buildings offers a much greater degree of control and security than investing in single-family housing. If you like to be able to predict success based on numbers and follow through to that success, multifamily real estate is right for you.
3 Responses to Real Estate Investing: Houses vs. Apartments
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SECURE AND CONFIDENTIAL
I agree with you about apartment vs houses. If you have a house sit vacant you are at a 100% vacany rate. if you have an multi-family you vacany is automatic lower. I also agree with you regarding your dollars are made on the buy and how much value you can create under your ownership. but buying right is the key..
The economics support this “thesis” and the future value can be significant. I like to think of this class as “I can see it. I can touch it. I can improve its financial performance and I can control it. Try that in the “paper” market – stocks.
The Donald of Mar Vista
Pick up any issue of Forbes 400 Richest Americans and in the Real Estate section you will find the real barrons of commercial real estate investing. Over 90% of them control and/or manage thousands of units of apartment buildings, not houses! That’s called a clue.