The Pros and Cons of Investing In Apartments
By admin on Sep 21, 2010 in Real Estate Guide
If you are considering investing in real estate, the purchase of apartments or multi-family properties may be of interest to you. There are several pros and cons to consider.
The Pros and Cons of Investing In Apartments & Multi-family Properties
Pros of Investing In Apartments:
• Loans of $3 million or under are ‘non-recourse’ meaning your private assets are protected in the case of default.
• Basic options like fixed or adjustable interest rates apply.
• If one tenant leaves you still have income from the others.
• You can live in one of the apartments yourself and still receive income from the others.
• Then you can be on hand to collect rent and do repairs.
• Rental income is high due to there being many tenants.
Cons of Investing In Apartments:
• You will need a larger loan than if you were to purchase a single-family property.
• Lenders in the multi-family league prefer to lend for upwards of five apartments or it’s not worth their while.
• Loans have a 30-year term so you are in it for the long term.
• The ‘smaller’ loans of under $3 million have a slightly larger interest rate.
• Those over that amount are ‘recourse’ loans, so the lender can seize your personal assets if you default.
• Properties need to be in good condition for you to qualify for the loan.
• There are many tenants to satisfy, rather than just the one.
If your property is also a mixed use one, you need to be careful of how assessed value is allocated. An incorrect allocation will adversely affect your income stream. The mill rate applied to commercial sections is 4 or 5 times higher than for the residential sections. In the case of a proportional split between commercial and residential make sure the commercial is not higher than it should be.
If the purchased price is above the assessed value, the values may increase for the new assessment roll, though this doesn’t always happen. Always consider what effect an increase in taxes will have on your budget.