Check out these 5 top questions that I found are among the most frequent that working professionals ask when they learn about my addiction to apartment investing.
How Can a “Regular Person” Invest in Apartments?
Yes, it is very possible, even common, for “regular people” to invest in apartments. Read Do I Have To Be Accredited To Invest in Apartments? for more detail about developing relationships with potential sponsors. Many working professionals do not have $50k-$100k laying around, so a great option is to roll the their 401k into a self-directed IRA, EQRP (I did this) or Solo-401k. The key to being able to take these opportunities is to get yourself prepared and your funds lined up. This can be accomplished by building great relationships and exploring options for tapping into your retirement funds for investing.
How Does One Grow Wealth by Buying Investing in an Apartment?
When a passive investor invests with a firm into an apartment asset, their initial investment is outlayed, and in short time what follows are regular distributions paid to investors(passive income) that come from the income produced by the property. At the end of the hold period, the property is sold and that is where the bulk of returns are made, which should allow investors to recoup their initial investment and meet the targeted returns.
How Can the Team Be Confident That they Will Eventually Sell An Apartment for Profit?
The business model that many sponsors follow, including Robinson Capital, is a value- add approach (check out this article about forced appreciation ).This strategy involves increasing the value of the property by improving its income potential. There are various levers to pull, but put simply adding value is the result of a combination of raising income through rent growth or other sources of income and lowering operating expenses.
Many times current rents are well below market, certain expenses are unnecessarily large and those changes can be made immediately. Those types of improvements are referred to as “operational value-add.” In other situations, more heavy lifting may be required with renovations, updates or deferred maintenance that must be addressed. These improvements drive income growth because more units may be available, residents are willing to pay higher rents or the curb appeal of the property has significantly improved. Every property is different but this should give you an idea.
What Other Benefits Exist from Investing In Apartments?
Apartment assets are a great way to diversify against the traditional 401k and stocks, which aside from their primary residence, are the investment areas of focus for most working professionals. Real Estate, when invested properly, is recession-proof (people always need a place to live) and inflation proof (as prices rises and real values decrease) real estate values historically match and even exceed inflation.
Aside from passive income and the potential for outsize returns after the sale, apartment investing has great tax benefits for investors. Many sponsors offer pass-through tax benefits to investors who can benefit from depreciation and offset their passive income earned on their taxes. Some investors so make much money from their business or other income source that they invest solely to offset or decrease their tax burden. Speak with your CPA to understand more based on your personal situation.
How Can I find out more and What could I do Next?
Great question! If you are a working professional who would like to diversify into real estate, perhaps passive investing in apartments is an option. Check out our free Passive Investor Startup Guide to learn more. Feel free to schedule a call with me to find out if apartment investing is right for you.
Passive Investor Startup Guide
To find out more about what it looks like to invest as a passive investor in multi-family real estate, download our free Passive Investor Startup Guide here!
Popular Passive Investor Articles
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Rodney Robinson II