Why You Should Invest In Apartments In A Down Market
Finding a place to live is especially difficult as we are edging on a recession and the shift towards remote work. The ability to work from home drove digital employees to seek larger floor plans and quiet living spaces. We’ve seen suburban single-family homes appreciate faster than their neighboring cities, according to Zillow data. New interest rates, inflation, and limited housing inventory are boxing out the middle-class Americans seeking a comfortable place to live.
Benefits of Buying Apartments, Workforce Housing, and B-class Apartments:
Many first-time real estate investors think single-family rentals will provide them with financial freedom. Would you rather take care of 5 single-family rentals or one 15-unit apartment complex? Apartment investing is more efficient and more sustainable than single-family rentals. Not to mention, having a portfolio that supports the workforce tenants will provide quality tenants that will remain for longer terms. This relationship will be mutually beneficial between tenants and landlords.
Scale Faster
Apartment complexes provide massively more passive income than single-family rentals. With this, you have the ability to buy more property and earn more at an exponential rate.
Appreciation
Appreciation of single-family homes depends on what surrounding comps and sales in the neighborhood are compared to your property. The value of a single-family rental is not determined by the profit it can generate. Instead, its value is determined by the surrounding comps and sales in the neighborhood. Appreciation of apartment complexes is different; it’s forced appreciation.
Suppose you increase the rent in one unit of your 15-unit apartment complex by $150. The value of your property increases by $1,800 per year. Now, if your complex is in a 6% cap area, you can take $1,800 and divide by 6% to determine forced appreciation: $30,000 added in property value. Apply this to your 15 units: $450,000 of forced appreciation.
Cash Flow and a Higher ROI
This is an obvious benefit of owning multiple doors. You’ll earn back the money spent on the property and renovations faster than a single-family home. Workforce housing may not earn you as much as luxury apartments, but you’ll save money by spending less on the amenities and the overhead required of these luxury apartments. Not to mention you’ll always have tenants and won’t have the issue of having to fill up a room because the demand for comfortable living is higher than ever, making this a sustainable investment for both you and your tenants.
Tax Benefits
Appreciation of single-family homes depends on what surrounding comps and sales in the neighborhood are compared to your property. The value of a single-family rental is not determined by the profit it can generate. Instead, its value is determined by the surrounding comps and sales in the neighborhood. Appreciation of apartment complexes is different; it’s forced appreciation.
The Ultimate Guide to Real Estate Taxes & Deductions (biggerpockets.com)
Invest in Your Community, the Time is Now!
Workforce housing is an investment that pays off for your community.
Investing in workforce housing and B-class apartments ensures that we keep our most essential resources near our cities: law enforcement officers, firefighters, and teachers. The housing market is boxing out middle-class renters. Investing in these buildings benefits these communities and creates betterment within your neighborhood.
It’s important to note the difference between affordable housing and workforce housing.
Seattle workforce priced out of King County
Millions of middle-class Americans are now boxed out of the real estate market. Many can’t afford a starter home and opt to rent close to work but struggle to earn enough to afford the luxury apartments and make too much to qualify for affordable subsidized housing. What does that mean for those who work in law enforcement, teachers, and small business owners?
Affordable housing is a government-subsidized housing program for individuals who make 60% and less than the median home income of the area. Workforce housing is for the individuals who earn 61% to 120% of the median household income. They are middle-income families that got left behind in the housing market. They make too much for affordable housing but not enough for the new luxury apartments. So, where do these Americans seek comfortable and affordable housing?
As prices increase for rents, single-family homes, and mortgage interest rates rise, but income levels stay the same, this gap in housing rates intensifies. As a result, demand for affordable housing without government subsidies is high, and the target market will remain in supply.
What does this mean for you as an investor?
Many buyers may be hesitant to buy property in a down market, but historically during a recession, housing prices decrease. Therefore, it will soon be a buyers market for those who have the capital. With this in mind and the need for workforce housing, this is the perfect time to buy into apartments.
Down economies are the best time to invest in apartments!
Summit Capital Partners is a real estate investment firm that specializes in the acquisition and management of multifamily properties. We believe that now, more than ever is the time to invest in apartments.
Why? When other investors are holding out on the market, we’re stepping in with cash and buying power. This means you can get better deals and secure your financial future while everyone else is worrying about what’s going to happen next.
Interested in design tips that will increase your ROI? Check out our blog How to Design your Fix and Flip to Increase Your ROI.
Jim Thorpe is a Seattle-based entrepreneur and real estate expert with over 30 years of experience in real estate development. He works to find high-demand properties in low inventory areas for both developers and homeowners alike. One of his specialties is locating single-family homes in property parcels zoned for multi-family development. His rental portfolio now includes houses, apartments, and commercial properties. Thorpe’s dedication to his business has led to city-wide growth and development in the real estate sector.
Summit Capital Partners is a real estate development and management firm that operates out of Puget Sound and is owned by Seattle real estate expert, Jim Thorpe. They work to acquire off-market real estate and specialize in developing risk-adjusted solutions, allowing an assets’ value to increase over 6-12 months. Summit Capital aims to make a difference in the community where they do business.
