Ron Cadman: Should You Invest in an Apartment or a Single-Family Home?
With the spring season in full swing, you may be gearing up to embark on some real estate investing. The question is, should you invest in a single-family home or an apartment building? Many investors become intimidated by apartment buildings that feature more than five units. However, large apartment units carry great promise for investors when compared with single-family residences, according to Ron Cadman, a co-director of Investar USA development firm. Here is a rundown on why you should invest in an apartment building this spring.
The biggest reason to invest in an apartment building is that valuations are handled differently between an apartment complex and a single-family home. With the latter, your property value will end up fluctuating when you compare your home with your neighbor’s. However, a larger apartment complex is valued based on the income approach. With this approach, the value of your property will depend on your building’s net operating income, not on neighboring properties’ values.
The income approach is an excellent method in that you can actively take measures that will increase your NOI and therfore gain value for the property you have purchased. This is not as easy to achieve with a single-family house.
Yet another reason to invest in an apartment building versus a single-family home is that your mortgage debt likely won’t appear on your personal credit report if you purchase an apartment. Meanwhile, with a single-family house, you can expect this debt to be included on your credit report.
Both types of properties do share similarities, however, when it comes to financing them, according to Ron Cadman. For instance, you can take advantage of fixed interest rates for one, three, five, or 10 years. Also, a 25% downpayment is typical. Ultimately, a trusted advisor can help you to make wise decisions regarding whether to invest in a home or an apartment this year.
The biggest reason to invest in an apartment building is that valuations are handled differently between an apartment complex and a single-family home. With the latter, your property value will end up fluctuating when you compare your home with your neighbor’s. However, a larger apartment complex is valued based on the income approach. With this approach, the value of your property will depend on your building’s net operating income, not on neighboring properties’ values.
The income approach is an excellent method in that you can actively take measures that will increase your NOI and therfore gain value for the property you have purchased. This is not as easy to achieve with a single-family house.
Yet another reason to invest in an apartment building versus a single-family home is that your mortgage debt likely won’t appear on your personal credit report if you purchase an apartment. Meanwhile, with a single-family house, you can expect this debt to be included on your credit report.
Both types of properties do share similarities, however, when it comes to financing them, according to Ron Cadman. For instance, you can take advantage of fixed interest rates for one, three, five, or 10 years. Also, a 25% downpayment is typical. Ultimately, a trusted advisor can help you to make wise decisions regarding whether to invest in a home or an apartment this year.
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