Apartment Investing 101: The Ultimate Guide

Apartment construction is at a record high, and the number of apartment rentals rose by 11% compared to last year in the U.S.

Even amongst the concerns of an imminent recession, the market is still hot. After all, recession or not, people need homes right?

This spells opportunity when it comes to apartment investing. There’s always REIT funds that can be purchased but directly looking for investment opportunities in the real estate market around you is a sure-fire way to pay large dividends in the future.

So how does one get started with apartment investing if they’re looking to get into real estate investing? And why apartments over other investment opportunities?

Related: Buying a House Checklist

The Benefits of Apartment Investing

Stable investment product

Compared to other real estate investment products such as office or retail space, multi-family residence comes with less risk and volatility. This is because they often don’t involve high turnover and tenant composition in these apartments usually dictate stable long term occupancy.

Build equity

On top of gaining monthly income that goes towards paying off the mortgage-related to the apartment. As the unit(s) appreciates, this is an asset that’s gaining value and building equity for the investor.

Low-cost debt

Lenders love apartment investment loans due to the stability and high-occupancy rates involved for attractive investment options. This means the cost of capital is low and there are many low-interest loan options to use.

Monthly dividends

Compared to investments in the stock market that may not pay dividends, apartment investments are guaranteed large sums of monthly dividends. This is great for improving one’s cash flow and these dividends can be reinvested in other investment products.

Inflation protection

Compared to cash and stocks, investing in real estate is a strong way to protect against any future inflation and protect the value of one’s wealth. It’s also a tangible asset, one that can’t vanish overnight due to sporadic market movements.

Related: How to Make an Offer when Buying a House


It’s not all benefits when it comes to apartment investing, and there are some drawbacks to be aware of.

Higher down payments

Lenders are often skeptical of non-owner occupied residence loan applications. This means that acquiring a loan will involve higher down payment requirements of 20 to 30 percent, and in rare cases, higher interest rates compared to if it was to purchase an owner-occupied unit.

It’s not a liquid asset

Compared to cash, or even investment in the stock market. Investing in apartments means the asset isn’t liquid and will require time and effort to liquidate if one needs to sell the apartment for funds. This can put a strain on one’s finances if a significant amount of their net worth is locked into this asset.

More active management

Apartment investments come with actively managing the unit and collecting rent. Airtight rental agreements must be drafted that outline payments and actions carried out in case of defaults such as late payment penalties. If tenants are unable to pay, many times there are state regulations in place that can have the tenants remaining in the unit rent-free until the case is resolved with mediation between the owner, tenant, lawyer, and state boards. All of this may occur with the owner on the line to pay monthly mortgage payments without any rental income.

This extends to the active management of the unit itself. Any issues with the apartment that require maintenance will commonly have the owner on the hook to fix. This can be avoided by hiring property managers but will require a portion of monthly rent going to the management firm.

Related: Best Time of Year to Sell a House

What to look for when investing

1. Goal setting and financials

Investing always starts with goal-setting. One must have a clear idea of why they are investing in an apartment and what level of risk and return they are comfortable with.

Based on this, one can narrow down the apartments that fit this criterion and evaluate the financials of the apartments. When looking at financials, the net operating income of the apartment is most important. What’s the annual income of the apartment currently and does it exceed annual expenses? Don’t trust any numbers shown on the agent or brokers brochure but investigate thoroughly to see if the numbers indicate a positive return on investment.

2. Location!

With any real estate investment, location trumps all and dictates how the future holds up. This means one must scout the neighborhood and significance of the location thoroughly. Research metrics such as crime rate, commute times, and nearby amenities or landmarks.

Take into account nearby ‘reasons to live’ when looking at the location. For example, is there a nearby university or large business complex? These will mean there are a growing and consistent demand for housing nearby to these areas for those that work or study in these establishments.

3. Vacancy rates

Historical vacancy rates are important when it comes to determining the attractiveness of an apartment to invest in. If the building has a low vacancy rate and many units are off the market very quickly after listing, this is a good sign.

4. Building history

Older buildings may come with a lot of hidden costs that an owner is unaware of. These buildings will have more maintenance issues that can drive any building maintenance fees, adding to the total monthly cost of owning the unit. It’s good practice to have a professional inspection carried out and visit the building often to notice if there any issues such as elevators out of service to gauge this.

5. Management competence

Finally, be sure to evaluate the competence of the building management team. This team handles the day to day of the building and ensures any small maintenance issues are handled. They also ensure the apartment building is well kept, clean, and safe for residents – all of which will impact how attractive it is to be rented out by prospective tenants.

Investing in an apartment can be a great way to build equity and gain passive income. Real estate values over the course of one’s lifetime are only guaranteed to rise with small corrections. This makes it a perfect vehicle for one to build their worth and gain passive income for retirement.

Ready to start investing? See what Zumbly can do for you!

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