Which investor are you? The NO WAY INVESTOR is basically saying "I worked hard for my savings and there is NO WAY I am going to risk losing it". The majority ทาวน์เฮ้าส์มือสอง of their savings are in CD's and money markets with extremely low rates of returns. The other investor is the SOME WAY INVESTOR and is always saying "There must be SOME WAY that I can find a better place to invest my money so I can get higher returns". Their investments are a broad mix of mutual funds, index funds, stocks and bonds. There are of course the very active investors (such as day traders) but I consider them the very small minority and not representative of the bulk of investors out there.
A fairly well-kept secret is that investing in Apartments is probably one of the few investments that actually could satisfy the needs of both NO WAY INVESTORS and SOME WAY INVESTORS. Apartment Investments has six (6) key characteristics that provide a unique set of investment qualities.
Steady stream of cash - apartments receive their income from the rents paid each and every month. The income is not dependent on one sole tenant (as seen in many retail or office properties) plus the tenants still need to have housing no matter what the economic situation is. A typical apartment investment will have excess cash (after paying operating expenses and debt service) which is typically distributed to the investors... sort of like dividends. Benefits of leverage - Apartments are typically purchased with bank loans that equal 70%-80% of the purchase value. This means you only need to come up with around 20%-30% of your own cash to acquire the property. So, assuming it is a $1,000,000 property then you only need $200,000-$300,000 in cash to acquire this apartment. However, your cash flow and appreciation are based on the full $1,000,000 investment. That is the power of leverage. Earnings through pay down of loan - As mentioned above, a big share of the money to purchase apartments comes from a bank loan. So this also means when your tenants pay their rent each month they are actually making the bank loan payment for you. Each month, the balance on the loan is being reduced as a result of the rents you are receiving. Your equity in the property increases each month. Earnngs through rent increases - The values of apartments, just like most commercial properties, is predominately based on the amount of Net Operating Income (NOI) the property generates. So, when rents are increased this gives the investors a higher NOI which also means the value of the property has increased. Currently, it is fairly normal to see an increase in rents, each year, of around 2%. To be fair, inflation will also affect the expenses incurred by the property so lets assume that expenses also increase by 2% each year. However, on average expenses are about 50% of the total rents received so some basic math tells us that even if rents and expenses both increased at the same rate there will still be an overall increase in the income received each year. The value of your apartment will increase each year simply from normal rent increases. Tax shelter through depreciation - any time you own real estate as an investment you are able to use depreciation as an extra expense when you are filing your tax return and as a result you will pay less taxes. Depreciation is an expense you file on your tax return even though you are not actually paying any money. Apartments are mostly depreciated over 27.5 years so it can be used to minimize your taxes. Unfortunately, depreciation simply allows you to delay paying your taxes so when you sell the property those delayed taxes will become due but most people would always rather pay taxes at a later date than today. Consistent and Secure Investment - When you are an investor in apartments you are actually one of the owners of the property. You can go by and touch and feel your investment. We have all seen how stocks and bonds can quickly drop in value as a result of a new skirmish in the Middle East or a hurricane in the Gulf or Congress arguing with the President over a balanced budget. So many things can affect all aspects of the stock market. But, regardless of world events your tenants will still keep paying their monthly rents simply because they need a place to live. It's as simple as that.
Investing in apartments gives you the ability to earn double-digit returns each and every year on your money. In addition, your investing dollars give you ownership of a tangible asset that will continue to grow in value. It does not get any better than that. If you are interested in apartment investing but are saying "How the heck do I purchase an apartment property" do not worry. There are many investment companies that specialize in finding and purchasing apartment properties and will give you the opportunity to invest with them on the purchase. The typical process allows you to be one of the owners of a specific apartment property which gives you the security in knowing where your investment dollars went.
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