Apartment & Multifamily Investing and Financing
How apartment investing creates cash flow and that creates mortgages.
Apartment & multifamily investing creates excellent cash flows, as well as benefiting from the normal tax and other real estate investment advantages. Learn in this article series about how economy of scale increases cash flows, how they're improved, and how lenders use ratios to analyze cash flow for mortgage decisions.
Apartments and multi-family investing is a logical next step for single family rental home investors. Using the 1031 Tax Deferred Exchange, these investors can roll the profits from the sale of single family properties into multi-family investments and postpone capital gains taxation.
Reasons Why Investors Choose Apartment & Multifamily Investing
Tens of thousands of single family residential rental home investors enjoy all of the benefits of this type of real estate investing. The cash flows coupled with tax advantages and appreciation in value over time are the main components.
But, many of them would probably sell those homes and move to apartment & multifamily investing if they fully understood the advantages of economy of scale. Apartment financing is also handled differently. Individual investor credit references and assets are often secondary considerations to the actual cash flow the property is expected to yield. Learn how things work in this series.
Apartment & Multifamily Investing - Vacancy and Credit Losses
While cash flow in apartment & multifamily investing is made up of both income and expense side financial items, vacancy and credit losses impact the income side before there's any opportunity to enhance cash flow through expense items control. Learn here about vacancy and credit losses from marketing and advertising influences through property management activities to control them.
Even a single month's unanticipated loss in rent can make a significant dent in ROI, Return on Investment. Learn how to reduce losses due to vacancy and non-payment of rent, or you'll be penalized in your pocketbook.
Owning a large number of rental units in one location usually generates greater cash flow per unit than an investor will realize through multiple residential single family rental units spread around the area.
The greater the number of units under one roof or in one location, the greater the advantages of economy of scale. As a single family home investor you can't get the bargaining clout with vendors that a 100 unit apartment owner has to their advantage. Learn here about economy of scale, and how to use it in several marketing and management activities to cut costs per unit and thus increase cash flow per unit.
Using the Break-even Ratio and DSCR (Debt Service Coverage Ratio), lenders can take a snapshot of the performance and cash flow of an apartment or multifamily project, and the size of a mortgage that this cash flow can support.
Lenders do not give as much attention to individual owner financial status and assets in multi-family loan consideration. Learn in this article about the different way in which these two ratios look at the cash flow and project mortgage qualifications.
Lenders and Apartment & Multifamily Financing Decisions
There's a great deal of due diligence done by both the buyer and the lender in apartment & multifamily investing. Virtually every marketing, advertising, management and expense line item in the financial statements are analyzed. Learn here how the lenders look at an apartment or multifamily project in making mortgage decisions.
Use the things you've learned here to decide if you want to move up to larger scale investing. It's less of a money decision than one of commitment, leverage and risk management.