While our initial investing advice to customers new to income properties is to begin with single family residential homes, eventually moving up into multi-family apartment complexes allows the investor to take advantage of the economy of scale. The economy of scale simply means you have a centralized location for building maintenance, rent collection, and other property related chores. Actually, you shouldn’t think of it as a chore because, chances are, the thing is going to make you a hefty chunk of money over the long haul.
However, the beginning real estate investor is urged to stick his toe in the water with a single home first – in reality, we would suggest you properly diversify by buying several homes at once, perhaps three, located in different geographical areas. Concentrate on creating a portfolio of these types of investments. It might be all you ever want to do and is a great way to create financial independence.
But we’ve been doing this long enough to realize that once the income property investing bug has taken hold, it’s only natural that, at some point, you want to move up into apartment complexes and play with the Big Boys. Nothing wrong with that but keep the idea of diversification in mind. You are NOT diversified if you sell all your single family homes in order to buy a single apartment complex. That counts as putting all your eggs in one basket and is not a good idea. What if the local real estate market where your complex is tanks? You’ve got nothing going in other areas to balance it out.
That would be described as the wrong way to do real estate investing.
A better stratagem would be to build up your portfolio of single family homes until you could sell a percentage of them to buy an apartment complex. Just make sure you have enough value in the remaining homes to balance out a short (or long) term loss in the apartments. Got it? Good.
The Creating Wealth Team
