Residential, Residential, Residential! It’s all I hear form investors these days. Everybody sees the potential in residential right now because there are a lot of great deals out there. And to a certain extent, they are right.
However, I still don’t think people truly understand the investment. Residential real estate is an annuity. I say this because when you invest in a single family home, a duplex and in some cases even when you invest in a four unit residential building, you have to put a lot of capital into the investment in order to receive an immediate income.
Think about this, an annuity is an investment of a large amount of capital for a specified amount of time. When the time threshold is reached, the capital investment begins to throw off a decent amount of income. The time threshold can be shortened by increasing the capital investment. That’s how most single family residential investments work.
Now take a small commercial building. You make an initial capital input and that investment pays you immediately! It is a business and the lenders will not lend the money on the investment unless it can pay for itself in the form of current income.
Many people are afraid of investing in small commercial buildings because they say they don’t understand the nuances of dealing with the business to business relationship. Some real estate investors are just more comfortable being a residential landlord.
If you find you are one of those people. If you understand the renter and you pride yourself in providing a great place for people to live, then you can still upsize your investments by purchasing small apartment buildings.
The small apartment building gives you economies of scale. It helps to reduce the cost per unit for maintenance and repairs because the building houses more units. This type of investment also helps to flatten the loss curve by giving you multiple streams of income tied to a single property.
Adding a small apartment building of 8-24 units can really pump up your cash flow. They are easy to get into using multiple strategies and the great news is that lenders are willing to lend on them. Where you might be struggling to get money to buy those single family homes, money to purchase small apartment buildings is abundant.
The advantages from purchasing small commercial residential properties like apartment buildings are numerous. Lower maintenance costs per unit, higher overall cash flow per investment, more flexible financing and the ability to negotiate great deals.
The secret to purchasing these deals is no secret at all. If you’ve purchased single family homes and rehabbed them to hold as rental then you already understand what you need to do to get started with small apartment buildings. Now all you need is the financing.
The financing can be arranged in many different ways. Down payments can be as low as 10% and in some cases you can structure deals with no money down. Remember that these are business deals and with the proper negotiation techniques there are many ways to bring a deal to the table.
The key is drop your fear of moving into larger properties and to understand the true money making potential of small apartment buildings. If cash flow is what you seek then investing in small apartment buildings can help you UPSIZE your residential real estate investing business and help you create a CASH FLOW MONSTER!
Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com
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