Investing in real estate can be a great way to build wealth and generate passive income. However, there are many different types of real estate investing, and it can be difficult to know which one is the best fit for you. In this article, we’ll help you find a good fit by looking at two popular types of real estate investing: apartment complex investing vs wholesale real estate investing.
Apartment Complex Investing
Investing in an apartment complex can be a great way to generate passive income through rental income. When you invest in an apartment complex, you become a landlord for many different units. You will be responsible for finding tenants, collecting rent, and maintaining the property. However, you will also have the benefit of having many units, which can help to diversify your income stream and reduce the vacancy risk.
One of the main benefits of investing in an apartment complex is that it can provide a steady stream of passive income. As long as the units are occupied, you will receive a rental income. This can be especially beneficial if you are looking to generate income to live off of or to save for retirement.
Apartment complex investing can also be a great way to build wealth over time as the value of the property increases.
You can even live for ‘free’ in one of the units, allowing the other tenants to pay off your investment while collecting income.
However, there are also some downsides to investing in an apartment complex. One of the main downsides is that it can be a lot of work to manage the property. You will need to find tenants, collect rent, and maintain the property. You will also need to manage bad tenants and potentially engage in eviction proceedings if a tenant is not paying rent.
Apartment complexes are not cheap, and you will need to come up with a sizeable down payment or some other funding source to get started. Because you are purchasing the property outright, you will ultimately be responsible for ensuring the mortgage is covered by the tenant’s rent.
Additionally, you will need to have a good understanding of the local real estate market to make sure that you are buying a property that will be in high demand. If you fail to research properly, you can end up in a situation where you have difficulty finding good stable tenants and keeping vacancy rates low.
Apartment Investing Aspects to Consider
- Location – The location of an apartment complex can greatly impact its potential for success. Look for areas with strong job growth, good schools, and access to amenities and transportation.
- Occupancy rate – The occupancy rate of an apartment complex is a key indicator of its financial performance. A high occupancy rate means that the complex is in demand, while a low occupancy rate may indicate a struggling property.
- Rent prices – The rent prices of an apartment complex can also greatly impact its financial performance. Look for properties that offer competitive rent prices in the area and can potentially increase rents over time.
- Property management – Good property management is crucial for the success of an apartment complex. Look for a company with a proven track record and a reputation for keeping properties well-maintained and well-managed.
- Financing options – Investing in an apartment complex requires a significant amount of capital. Look for financing options that are tailored to your specific needs, such as traditional bank loans, private equity, or crowdfunding.
- Legal and compliance – Investing in an apartment complex require compliance with various laws and regulations. Make sure that the property is in compliance with all local, state, and federal laws and regulations before investing.
- Scalability – Investing in an apartment complex with the ability to scale and expand can be a great way to grow your investment over time. Look for properties that have the potential to add units or buildings in the future.
Wholesale Real Estate Investing
Wholesale real estate investing is a popular method among investors looking to make quick profits by buying properties at a discount and reselling them for a higher price. This method involves finding properties that are undervalued due to various reasons such as distress, probate, or motivated sellers and then selling them to other investors or home buyers at a higher price. The wholesaler is not actually purchasing these properties. Instead, they are entering into a temporary purchase contract and then finding an interested party that wishes to buy the property. The wholesaler then cuts the sales price, which is usually 5-10%. On a single 150,000 home sale, this can net the wholesaler $15,000.
One of the main benefits of wholesale real estate investing is that it can be a great way to make money quickly. When you find a property that is undervalued, you can often resell it quickly for a profit. Very little of your money is actually at risk (earnest money), but the upside potential is great. There are paths available to back out of the contract if the wholesaler cannot find a buyer.
Because the wholesaler is not actually buying the properties, there is no property management or repairs needed. You are managing contracts and deals, not holding and managing actual properties.
Additionally, wholesale real estate investing can be a great way to build a real estate portfolio quickly. By buying and reselling properties, you can quickly build up capital to invest in a portfolio of long-term rental properties that can generate passive income for you.
However, there are also some downsides to wholesale real estate investing. One of the main downsides in the current market of inflated prices is that it can be difficult to find undervalued properties.
You will also need to have a good understanding of the local real estate market to make sure that you are buying properties that will be in high demand and which you can quickly find interested buyers for.
Wholesaling is really focused on networking. If you lack the skills to negotiate or convince homeowners with undervalued homes to sell a purchase contract to you, you will have difficulty working in this field.
Wholesale Real Estate Investing Aspects to Consider
- Location is key – Look for properties in desirable areas with strong potential for appreciation in value. This could include areas with a growing population, a strong economy, and a good school district. Homeowners and investors are already looking to purchase in these areas, so if you can bring them a purchase contract, you are more likely to make a quick sale.
- Research the market – Understand the current market conditions and trends in the area where you are considering investing. Look for properties that are undervalued and in need of repairs or renovations, as these can provide the greatest potential for profit. Usually, these homes won’t be listed on the MLS, so you may need to scout or search through your network.
- Network with other investors – Wholesaling real estate is a competitive business, so it’s important to build a network of other investors, real estate agents, and contractors who can help you find and purchase properties at the right price.
- Understand the legal and financial aspects – Before investing in wholesale real estate, it’s important to understand the legal and financial aspects of the transaction. This includes understanding the purchase contract, the closing process, and the tax implications of the sale.
- Have a plan – Before you start buying properties, it’s important to have a plan in place for how you will resell them. Wholesaling typically involves an immediate turnaround of the property to another investor, leaving you to collect the wholesale fee. If you have issues finding an investor to buy the contract, you will need a backup plan, which may include purchasing the property yourself, renovating the property, and renting it out. Or you can bail on the contract and take any contractual losses.
- Have a budget – Wholesale real estate can be a costly investment, so it’s important to have a budget in place to cover the cost associated. If you need to back out of a purchase contract because you fail to find a buyer, you might be on the hook for the earnest money deposit.
- Be patient – Wholesale real estate can take time to pay off, so it’s important to be patient and not rush into any decisions. It’s better to take the time to find the right property at the right price than to rush into a bad deal. Build your buyers list and focus on running the numbers before entering into any hasty contract deals.
Which One Is Right for You?
Both apartment complex investing and wholesale real estate investing can be great ways to build wealth and generate passive income. However, picking the one that is right for you will depend on your goals and circumstances.
If you are looking for a steady stream of passive income, then apartment complex investing may be the better option for you. Once you have purchased the property, contracted a property management company, and found good tenants, there won’t be much daily work on your end. But you’ll need to come up with appropriate funding to make the initial purchase.
However, if you are looking to make money quickly, wholesaling is a great route. You won’t need to invest much of your own money, and if you are well-versed in negotiating and networking, you can make a sizeable income with just a few sales.
I am a freelance technical content writer with a knack for taking complex technical concepts and making them easily digestible for a wide range of audiences. I am constantly striving to stay ahead of the curve when it comes to industry trends and advancements.
My love for science and technology extends beyond my professional life and I am a self-proclaimed science buff and video game enthusiast. I also day trade for fun using a paper trading account on Thinkorswim.
I am always on the lookout for new and exciting projects to sink my teeth into and am committed to continually honing my skills.