The lesson for this week; Advantages of Owning Apartment Buildings!
Have you ever played the game Cash Flow 101 by Robert Kiyosaki? If not, I highly recommend it. In the course of a few hours you can learn some valuable lessons about how to analyze properties quickly and whether or not you should buy them for cash or getting a loan and leveraging the investment. You start the game in ‘The Rate Race’ which is in the shape of a hamster wheel. You go round and round in your JOB until you do what needs to be done to get out of the Rat Race. What is that? You need to generate enough passive income to surpass your monthly expenses so you can, in essence, quit your JOB and move onto The Fast Track where you can do larger and more lucrative transactions.
Buying apartments is one of the investment vehicles you can use to get out of the Rat Race very quickly. Why? Instead of buying 1 single family home here and there, why not take that same time, effort and money, and buy a 10 unit or 20 unit or 50 unit property? Your returns and Net Worth can be amplified exponentially if you buy the right property in the right market at the right time. You learned how to exponentially increase the value of the property in the lesson on Cap Rate a few weeks ago. How do you know you’re buying the right property in the right market at the right time? You’ll learn that over the next few months by reading these lessons.
Another advantage to buying apartments is due to the lower purchase price per unit. Think of it this way; if you go to a store and buy a can of soda, how much would that one can cost? Maybe a $1? But what if you bought a 12-pack? Last time I checked, 12-packs of soda ranged in price from $2.50 to $4 depending on the store and soda type. So you now have a choice. Buy 4 cans of soda for $1 each or get a whole 12-pack for $4. Hum? What would you do? It’s similar with apartments when compared to SFH’s. If you buy in bulk you expect a discount. Even though you may buy at a discount, the biggest advantage to buying apartments over other types of RE is the fact that your expenses are so much lower than SFH expenses because you can average out those expenses over more units. This is where the real value in apartments comes into play. It’s not by increasing rents perse. It’s more about controlling the expenses.
The vacancy is relatively lower with apartments too. Think of it this way, if you spent the same money in the form of a down-payment on a SFH compared to a 10 unit apartment building and either your SFH was vacant or 1 of your units was vacant, which one would have a lower vacancy rate? The apartment building, of course. When your SFH becomes vacant, you have 100% vacancy, but if only one of your apartments is vacant, your vacancy is only 10%. With the SFH, if it’ vacant, who’s paying the mortgage? You are. If you have one vacant unit in your apartment, who’s paying the mortgage? The other 9 tenants, that’s who!!! I love apartments!
Next week I’ll tell you about a few more advantages. Until then, have an awesome week!
Anthony Chara