Top Profitable Ways to Start Investing in Apartment Complexes

Investing in apartment complexes can sound really scary, especially if you’re just starting out. You hear all these fancy words like “syndication” and “REITs” and it’s easy to get totally confused. But the good news is, you don’t have to be a millionaire to get started. There are lots of ways to invest, from simple and cheap options to more complicated ones for people with a lot of money.

Whether you want to own the building yourself or just invest and make some passive income, this guide covers the best ways to profit from apartment complexes.

Why Choose Apartment Complex Investing?

Before discussing the different strategies, it’s crucial to understand why apartment complexes are more profitable than other types of real estate, like single-family homes or vacation rentals.

• Economies of scale: It’s more cost-effective to manage several units in one building than to handle multiple single-family properties spread across different locations.
• Consistent cash flow: Having 10, 20, or even 50 units means that a few vacancies won’t significantly impact your overall cash flow. The income from occupied units helps offset the losses from the empty ones.
• Growing rental demand: As more people move into cities and housing becomesa harder to find, apartment buildings become a more attractive and in-demand option for renters.
• Tax benefits:
  Investors can take advantage of tax benefits like depreciation, deductions for mortgage interest, and other financial incentives.

Whether you are new to this or working with a small budget, here are some easy steps to invest in apartment buildings.

1. Buying an Apartment Building Yourself

One of the most direct, though expensive, ways to invest in apartment buildings is to purchase one yourself. This option provides maximum control but also demands significant effort and a large upfront investment.

Direct Ownership and What It Entails

If you choose this path, you’ll usually partner with a real estate agent who focuses on multi-family properties. The benefit is having complete control over your investment—you get to decide the location, the type of building, and who rents the units. However, with that control comes a lot of responsibility, including handling maintenance, collecting rent, and managing tenants, unless you hire someone to do it for you.

The Financial Barrier

To follow this path, you’ll need a significant amount of money. Typically, you’ll have to pay 25% to 30% of the property’s price as a down payment. For instance, if the apartment costs $1 million, you’ll need $250,000 to $300,000 upfront, plus additional costs like closing fees and potential renovations.

Lenders will also take a close look at your finances, just like they would if you were buying a house. They’ll check your credit score, income, debts, and overall financial situation. If your credit isn’t great or you have a lot of debt, it’s a good idea to save up a bit more to make yourself less risky in the eyes of lenders.

Managing the Property

Taking care of an apartment building by yourself can easily turn into a full-time commitment. To lighten the load, many property owners hire management companies to handle tasks like maintenance, collecting rent, and dealing with tenant concerns. Although this reduces your profits, it saves you time and helps minimize stress.

2. REITs (Real Estate Investment Trusts)

If the thought of owning and managing apartment complexes feels overwhelming, you’re not the only one—that’s why REITs exist.

What Is a REIT?

A Real Estate Investment Trust, or REIT, is a company that makes money by owning or managing properties that generate rental income—like apartment buildings, offices, or shopping centers. What makes REITs unique is that they’re legally required to pay out at least 90% of their profits to shareholders in the form of dividends. This setup makes REITs a great option for people who want to earn regular, passive income without having to buy or manage real estate themselves.

Benefits of Investing in REITs

• Easy to Get Started: You can easily purchase REIT shares through an online brokerage account, just like buying stocks.
• Easy to Buy and Sell: Publicly traded REITs can be quickly bought or sold whenever needed.
• Steady Income: REITs often pay out regular dividends, which can be a reliable source of income—especially if you’re looking for passive earnings.

Limitations

REITs are great for generating a steady cash flow, but they typically have less growth potential than regular stocks. Since they must pay out most of their earnings as dividends, there’s less money available for reinvestment for expansion. Even so, REITs remain an excellent choice for stable income and gaining exposure to real estate without the need to own property.

3. Real Estate Syndication

Syndication is a great option for investors who prefer a less hands-on approach but still want to own a share of large-scale properties.

How Syndication Works

Real estate syndication brings together a group of investors who pool their money to purchase and oversee real estate. This process is typically led by a sponsor, who provides both capital and expertise while landing the property’s management. The other investors, known as limited partners, simply contribute funds but do not take part in managing the property.

Advantages of Syndication

• Provides access to large-scale apartment buildings with minimal upfront investment.
• Offers passive income opportunities and the potential for property value growth.
• The sponsor handles the property’s management and operations, reducing your workload.

The Drawbacks

Most syndications require you to be an accredited investor, which means:

• Earn at least $200,000 annually (or $300,000 jointly with a spouse).
• Or having a net worth of over $1 million, excluding your primary home.

This makes it less accessible, but for those who meet the requirements, syndication can be a highly rewarding investment option.

4. Real Estate Crowdfunding

Real estate crowdfunding platforms offer a simple and low-cost way to start investing in apartment complexes.

How It Works

These platforms collect funds from multiple investors to purchase and manage real estate, such as apartment complexes or commercial buildings. Some platforms offer their own REIT-like products, often called eREITs, while others provide individual investment opportunities for you to join.

Top Platforms to Explore

• Fundrise: With a low starting investment of just $10, Fundrise is one of the easiest platforms to access. It offers diversified real estate portfolios and has historically delivered annual returns of 8-9%.
• RealtyMogul: This platform requires a $5,000 minimum investment and provides options for both private REITs and individual property deals.
• Streitwise: Also requires a $5,000 minimum, Streitwise leans more toward commercial properties and charges a 2% yearly fee.

Advantages and Disadvantages

Advantages:

• Easy to get started, with a low investment requirement.
• Earn passive income through dividend payments.
• Offers diversified exposure without requiring much time or effort.

Disadvantages:

• Less liquidity compared to publicly traded REITs.
• Returns are not guaranteed and depend on how the properties perform.
• 4. Real Estate Crowdfunding

5. Work With a Partner

If you’re interested in owning real estate but want to start small, teaming up with a partner can make the experience simpler and less overwhelming.

Why Consider a Partnership?

• Share the costs: Helps lower the amount of money you need to invest.
• Split responsibilities: One person can focus on the finances, while the other takes care of daily operations.

This setup works best when each partner contributes unique skills or resources.

Important Points to Keep in Mind

• Define roles and create legal agreements: Clearly assign responsibilities and put everything in writing.
• Agree on key decisions: You must work together on important choices, such as selling the property, making renovations, or raising rent.
• Effective communication is vital: Poor communication can lead to conflicts that might result in expensive legal issues.

Partnering lowers your individual risk and workload but also means you’ll need to share control over the investment.

6. Real Estate Funds

If you’re looking to spread your investment across different real estate markets, a real estate fund could be a good option.

What Are Real Estate Funds?

The real estate are mutual funds or ETFs that put money into real estate-related investments, like RETs or actual properties. They come in two main types:

• Actively managed: A fund manager picks investments they think will do well.
• Passively managed: These simply follow a real estate index and try to match its performance.

How They Compare to REITs

REITs primarily aim to provide steady income through dividend payouts, whereas real estate funds are more focused on growing their value over time. This approach can result in lower immediate income but higher potential returns, depending on market trends.

Note:
A 25-year study found that listed equity REITs delivered an average annual return of 9.74%, while private real estate investments had a lower average return of 7.66%—about 2% less than REITs.

​Conclusion

There’s no single method for investing in apartment complexes. The best approach depends on your financial goals, available funds, and how much involvement you prefer in managing the investment.

Quick recap: Here’s a brief overview of the key points to help you decide.

If you’re uncertain, it’s best to start with small investments. For example, you can try putting $10 into Fundrise or purchasing a few REIT shares to learn the ropes. Once you feel more confident and have more money to invest, you can explore bigger opportunities like teaming up with a partner or joining a syndication.

No matter which you take, apartment complexes can be a strong investment—offering steady income and the potential for long-term growth.