7 Options for Investing in
Apartment Buildings

Table of Contents

Real estate investing can be a great way to earn passive income. Investing in apartment buildings, also known as multifamily properties, is a popular option for many real estate investors. These types of properties allow you to earn rental income from multiple tenants, rather than just one individual. However, there are several different approaches to investing in apartment buildings, each with its own pros and cons.

Here are seven options for investing in apartment buildings:

Buy it yourself

This option involves purchasing an apartment building for sale outright and taking on all the responsibilities of ownership. This includes doing the proper due diligence.

For example, you can review deals and find a loan. Or you can hire a property management company to handle the day-to-day tasks of managing the building.

You’ll also need to decide when (and if) to sell the property. Investing in a rental property allows you to have complete control over the investment. You can base your strategy on your current life circumstances. However, it requires the most upfront capital and can be an intimidating approach for those without experience.

Pros of buying a multifamily building yourself:

• Complete control: Buying a multifamily building outright gives you complete control and decision-making power.
• Potential for increased profitability: A multifamily building can potentially generate more rental income and be more profitable than a single-family property.
• Potential for appreciation: You could potentially sell the property for a profit if its value increases over time.

Cons of buying a multifamily building yourself:

• Upfront cost: Buying a multifamily building requires a larger upfront investment compared to partnering or investing in syndication.
• Responsibility: As the owner of a multifamily building, you are responsible for managing the property. This includes tenant acquisition, rent collection, and maintenance.
• Risk of loss: Investing in a multifamily building carries the risk of loss. This is especially if the property performs poorly or the real estate market declines.
• Lack of diversification: Buying a multifamily building outright means your real estate investment is concentrated in a single property, rather than being diversified.

Buy it with a partner

Partnering with someone to purchase an apartment building can help you pool capital and share the workload. It’s important to have open communication with your partner.

You want to ensure that you are on the same page about the vision for the property. It’s also important to discuss how to handle things like renovations and exits.

Having a partnership can be rewarding, but it’s also important to carefully consider the potential drawbacks. Such could be conflicting views or misunderstandings.

Pros of buying a multifamily building with a partner:

• Shared capital: Partnering with someone to purchase a multifamily building allows you to pool your capital and potentially afford a larger or higher-quality property.
• Shared workload: Buying a multifamily building with a partner allows you to share the workload and responsibilities of property ownership.
• Potential for increased profitability: A multifamily building can generate higher rental income than a single-family property, potentially leading to increased profitability.

Cons of buying a multifamily building with a partner:

• Conflict: Partnerships can be rewarding. However, remember it’s important to consider the potential for conflicts and have open communication with your partner. Make sure you are on the same page about the vision for the property.
• Legal issues: It’s important to carefully document the terms of the partnership and protect your interests legally. This may involve hiring an attorney or mediator to draft a partnership agreement.
• Risk of loss: As with any investment, there is a risk of loss when investing in a multifamily building. This is heightened if the property performs poorly or the real estate market experiences a downturn.
• Lack of control: As a partner in a multifamily building, you don’t have complete control. Meaning you may need to consult with your partner before making certain decisions.

Invest in a syndication

Syndication is a pool of funds used to purchase an apartment building, with investors purchasing a stake in the property.

The syndicator, or the person running the investment, handles all the details of the investment. This includes due diligence, property management, and renovations.

Investors earn passive income through their share of the property’s profits. This option allows real estate investors to participate in a multifamily property investment without the responsibilities of direct ownership. However, it’s important to carefully research the syndicator and understand the terms of the investment.

Pros of investing in a syndication:

• Professional management: Many syndications are run by experienced professionals who handle property management and make buy/sell decisions. This can be a good option for investors without the time or expertise to manage a property themselves.
• Passive income: Syndications can provide a source of passive income in the form of dividends or rental income from the properties they hold.
• Shared responsibility: Investing in a syndication allows you to share property ownership responsibilities with other investors.

Cons of investing in a syndication:

• Fees: Syndications may charge fees, which can reduce returns.
• Lack of control: As an investor in a syndication, you don’t have direct control over the properties or decisions made about them.
• Risk of loss: Investing in a syndication carries the risk of loss, especially if the portfolio performs poorly or the real estate market declines.
• Lack of liquidity: Investments made through syndications may be considered illiquid investments, meaning it may be difficult to sell your stake quickly if needed.
• Regulatory risks: Syndications may be subject to regulations, which can affect operations and your investment. It’s important to research the syndication and understand the risks.

Buy a property through a REIT

REITs (real estate investment trusts) allow investors to purchase shares in a portfolio of properties, including apartment buildings. This option allows you to diversify your real estate holdings and avoid the responsibilities of owning a property directly.

However, you’ll need to pay fees to the REIT and may have less control over the properties you invest in.

Pros of buying through a REIT:

• Diversification: REITs allow you to invest in a variety of properties, providing diversification within your real estate portfolio.
• Professional management: REITs are professionally managed, which means you don’t have to worry about the day-to-day management of the property.
• Liquidity: REITs are publicly traded, which makes them more liquid than owning a physical property. This means you can sell your investment more easily if you need to.

Cons of buying through a REIT:

• Lack of control: Because you don’t own the actual property, you have less control over the management and decision-making.
• Fees: REITs often charge management fees, which can eat into your profits.
• Volatility: REITs can be more volatile than owning a physical property, as their value is tied to the stock market.

Purchase a property through a crowdfunding platform

Crowdfunding platforms allow investors to purchase a stake in a property with a smaller amount of capital.

This can include multifamily properties, such as apartment buildings. While this option allows you to invest in real estate with a smaller amount of upfront capital.

However, it is important to carefully research the platform and the specific investment opportunity. There may be risks and fees involved.

Pros of purchasing a property through a crowdfunding platform:

• Access to a wider range of properties: Crowdfunding platforms can allow you to invest in properties that you might not have been able to afford outright.
• Lower upfront cost: Crowdfunding platforms typically allow you to purchase a stake in a property with a smaller amount of capital.
• Professional management: Many crowdfunding platforms offer professional property management services.

Cons of purchasing a property through a crowdfunding platform:

• Fees: Crowdfunding platforms may charge fees for their services, which can reduce returns.
• Lack of control: As an investor in a crowdfunding platform, you don’t have direct control over the properties or decisions made about them.
• Risk of loss: Investing through a crowdfunding platform carries the risk of loss, especially if the property performs poorly or the real estate market declines.
• Lack of liquidity: Investments made through crowdfunding platforms may not be as liquid as other types of investments, meaning it may be difficult to sell your stake in the property quickly.
• Regulatory risks: Crowdfunding platforms are relatively new and may be subject to regulatory changes that could affect your investment. It’s important to research the platform and understand the risks.

Participate in a leasehold

A leasehold is a long-term lease on a property. It gives a tenant the option to purchase the property at the end of the lease term.

If you don’t have the upfront capital to purchase a property outright, this can be a good option. It allows you to have some control over the property.

It’s important to carefully review the terms of the lease and understand your rights and responsibilities as a leaseholder.

Pros of participating in a leasehold:

• Lower upfront cost: A leasehold allows you to occupy a property long-term without paying the full purchase price upfront. This can be a good option if you don’t have the capital to buy outright.
• Potential to build equity: If you make improvements to the property during your lease term, you may be able to build equity towards the purchase price when the lease ends.
• Flexibility: A leasehold can be a flexible arrangement, as you can choose the length of the lease term based on your needs.

Cons of participating in a leasehold:

• Limited ownership: As a leaseholder, you don’t have full ownership of the property and may not have the same rights as an owner.
• Ongoing costs: While you don’t have to pay the full purchase price upfront, you will still need to pay ongoing costs such as rent and maintenance expenses.
• Risk of not being able to purchase: A leasehold gives you the option to purchase the property at the end of the lease term. However, there is no guarantee that you will be able to do so. The property owner may choose not to sell or the purchase price may be too high.
• Risk of eviction: As a leaseholder, you may be at risk of eviction if you fail to pay rent or breach the terms of the lease in some other way. If you are evicted after making improvements to a property, you may lose the investments made in those improvements.

Invest in a real estate fund

A real estate fund is a type of investment vehicle that pools capital from multiple investors. It then uses it to purchase a diversified portfolio of real estate assets, including multifamily properties such as apartment buildings.

This option allows you to invest in real estate without the responsibilities of direct ownership. It can also provide the benefits of diversification.

Pros of investing in a real estate fund:

• Diversification: A real estate fund can allow you to invest in a diversified portfolio of properties, which can help to spread risk and potentially increase the stability of your investment.
• Professional management: Many real estate funds are managed by experienced professionals who handle the day-to-day management and maintenance of the properties, as well as making decisions about when to buy or sell. This can be a good option for investors who don’t have the time or expertise to manage a property themselves.
• Passive income: A real estate fund can provide a source of passive income in the form of dividends or rental income from the properties it holds.
• Access to a wider range of properties: Investing in a real estate fund can give you access to a wider range of properties than you might be able to afford to invest in individually.

Cons of investing in a real estate fund:

• Fees: Real estate funds usually charge management fees and other expenses, which can eat into your returns.
• Lack of control: As an investor in a real estate fund, you don’t have direct control over the specific properties that the fund invests in or the decisions that are made about those properties.
• Lack of liquidity: Real estate funds may not be as liquid as other types of investments, meaning it may be difficult to sell your shares quickly if you need to.
• Risk of loss: As with any investment, there is a risk of loss when investing in a real estate fund. Particularly if the fund’s portfolio performs poorly or the real estate market experiences a downturn.

It’s always important to carefully research the real estate fund and have a clear understanding of the terms of the investment. This is because there may be risks and fees involved. This option is good for those who want a low-maintenance real estate investment and are okay with the risk and costs involved.

Real estate investing can be a way to earn passive income. Investing in apartment buildings, also known as multifamily properties, is a popular option for many investors.

As you can see, there are several different approaches to investing in apartment buildings. Each option has its own pros and cons. It’s important to carefully consider the potential risks and rewards before making a decision. If you would like to discuss your investment needs in more detail, please don’t hesitate to contact us here at Smartland. We would be happy to help you explore your options and find the best solution for your financial goals.