Common Misconceptions About Investing in Multifamily Apartments

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Multifamily has historically been a popular alternative investment vehicle for decades. The wealthy have long known the benefits of investing in multifamily apartments and the generational impact that it can have on wealth building and preservation.

Unfortunately, many misconceptions have prevented the average person from enjoying these same benefits, as real estate investing (especially commercial assets like multifamily buildings) seem out of reach. There is a lot of talk and publicity about investing in the stock market but alternative investments, relative to stocks, are not as frequently publicized. So not only is there a perceived lack of access to these investments but there is also a gap in knowledge about opportunities to invest in real estate.

These misconceptions may be the same ones stopping you and others you know from potentially experiencing and enjoying the life changing benefits that come from successfully investing in real estate.

In this article we will clarify some of these common misconceptions.

It costs too much! You need to be extremely wealthy to buy a large multifamily building

For many people, their real estate experience and understanding is only limited to the purchase of a single-family home as a primary residence.

The purchase of a single-family home is often one of the largest purchases a person makes in their life and requires a significant sum of money. It is understandable that someone may think “how can I afford a multifamily apartment investment, if I could barely by my single-family home?”

The idea that it costs too much to invest in a multifamily apartment is largely based on the fact that people assume you have to do it yourself. The reality is that via syndications (a form of investing with a group of partners) you may actually be able to invest in a multifamily apartment for a fraction of what it would cost you to buy a single-family home. Additionally, when purchasing a multifamily apartment, you would get each unit at a cheaper price than the single-family home. You can think of buying a multifamily building similar to buying wholesale.

Real Estate always goes up!

Real estate always goes up they say. Is that really true? Well, yes and no. We can get into an overly brainy conversation about real price growth adjusted for inflation and nominal price growth not adjusted for inflation but that’s beyond the scope of what we are discussing here. What many people are often referring to when they say this is the sales price.

The reality is that in the long run, like most investments, real estate does always go up. This does not however mean that it will always go up for you in the short term. The real estate market moves in market cycles of expansions and contractions. The profitability of a real estate investment is not solely based on the market itself but also the investment strategy and the individuals who are managing the investment. This truth applies with all types of investments.

A popular quote amongst real estate investors is that “you make money when you buy.” While this could mean several things, one of the main meanings is that a good investment is made based on the terms obtained when you make the initial purchase. If the investment was purchased at the right price, with the right financing, in the right market etc. that can overcome many of the issues faced during the life of the investment.