Buying Apartment Buildings: Look for Larger Units

Investing in a large apartment building is better than investing in smaller units for several reasons.

When you buy a building with a large number of units, you can expect the seller to have complete records. This makes the experience more professional and enjoyable. Also, when the size of the investment is large, you can expect the brokers to guide you through the whole process.

Buying a property can be a stressful experience especially because it involves a lot of steps that you may not be comfortable with. You have to complete several formalities and this wouldn’t be possible without expert advice.

Obvious cost benefits

When the building is large, the cost per unit is relatively low. For instance, the property management fees for larger buildings are relatively lower. Insurance costs may also be lower.

Less closing costs

When you buy a larger building, you pay less money in closing costs. Generally speaking, an appraisal may cost at least 2,500 dollars irrespective of the size of the building. In fact, you will be paying more or less the same amount for both small and large buildings.

The loan doc preparation costs may also be the same for both small and large buildings. The SEC attorney who prepares your legal documents may charge the same amount for preparing documents for units of different sizes. For a building that is worth $2M closing costs may be about 4.5 % of the value of the property. For a much smaller building, the closing costs can amount to 8.5% of sales value.

Better financing

Getting a larger loan is relatively easy. They also have lower interest rates. Better still, large loans almost never require personal guarantees probably because the down payment will be high in this case.

More profits

If you do bigger deals, you will make more profits. So, if you are a real estate investor and your goal is to do 100 units per year, doing one or two large deals is much better than doing ten small deals.

However, there are quite a few challenges that you have to overcome before you can do bigger deals.

The biggest obstacle is convincing yourself that you can do it. Bigger deals might involve more work. Sometimes finding a bigger deal itself can be difficult. But remember that one big deal is equal to several small deals. That means you will have to work many times harder to do several small deals.

You will probably also have to overcome some mental blocks. Many people are afraid of doing bigger deals despite knowing that it is more profitable.

Raising capital

Raising capital can be another problem. In order to undertake big deals, you need more money. You will probably have to borrow money. Actually, this is what discourages many investors from pursuing big deals. 

However, if you are confident and do a bit of search, raising money isn't all that difficult. Many private individuals are willing to offer hard money loans. You just need to find someone with a big enough pocket.

Investing in a bigger apartment building is definitely better than investing in a smaller building. Forget about those duplexes and penthouses. Instead, look for buildings with a large number of units. That is what smart investors do.

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