Large apartment buildings in moderately priced areas
such as the midwest offer potentially good returns with little downside
risk. In today's economy if people aren't buying, they are renting.
Hence many apartment complexes are close to 100% occupancy. The Apartment
Industry is one of the few areas of our economy that are flourishing.
As of early 2009, it is possible to buy a share of a
large apartment building (via a partnership agreement) at a reasonable
price. Here's why the purchase of an apartment building may be advantageous
for today's investors. Let's review the numbers on a recent apartment
building purchase:
Purchase price: 30 million.
Rental income at 90% occupancy: $5,400,000 (600 apartments at $750
per month per apartment).
Expected annual expenses: $2,400,000.
Net about $3,000,000 per year (10% of purchase price).
1) Positive cash flow from day one and if rents rise,
you may generate more cash flow.
2) Fewer people are buying homes, therefore they must
rent, creating constant demand for apartments.
3) There were 200 million US residents in 1960. Now
there are 300 million US residents. More people need a place to live.
4) The value of an apartment unit is very low relative
to condos. The complex we just bought had 600 units for 30 million
dollars translating into $50,000 per unit. Very inexpensive in suburban
Chicago relative to condos which are selling for $120,000. So converting
to condos is another method to make money and assure that apartment
building prices remain, at the very least, at current levels.
Please note that apartment buildings are generally not
liquid. Buyers must understand that access to principal during ownership
is not viable.
In keeping with our "Advanced Planning" approach,
this seems to be an asset that has little downside and enormous upside.
It is unlikely that occupancy will drop and more unlikely that rents
will fall. Hence you should be assured of a good cash flow.
An apartment building may be an ideal purchase for those
seeking long term income.
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