Income Property Investing: One unit at a time
Real estate has tremendous wealth-building potential. Smart investors know that they should add real estate to their portfolio. Because people need a place to live, residential property ownership is a safer bet for the small investor. Owning income property is a smart way to earn passive income especially in retirement. But the price of a property can be out of reach for many people. Yet you don’t need huge capital to invest in real estate. For the most part, you only need sufficient money for downpayment plus additional upfront costs, but the downpayment is the biggest amount you’d need (about 10% of the property value). Still, for many first-time investors this can be discouraging. But there is a way. You can buy the ideal property that suits your budget – such as an apartment-unit turnkey property.

Why should you buy an apartment unit for rental income? Generally, the cost of an apartment building is higher than that of a single-family home. But the cost of one apartment unit is significantly less than the cost of most single-family homes. Of course, there are exceptions: some luxury apartments are more expensive than many single-family homes, and some luxury single-family homes are more expensive than many small apartment buildings. But on average, a single-family home costs more than an apartment unit. Given this assumption, let us now see how it makes sense to buy an apartment unit rather than a single-family home to generate rental income?

Lower initial capital
Given that an apartment unit on average costs less than a single-family home, the initial capital outlay required to buy one apartment unit would be lower compared to that for one single-family home. The investor would be required to make a smaller downpayment for an apartment unit than for a single-family home. For example, supposing you are a first-time investor. And suppose that you were presented two options: an apartment unit selling for $200,000 and a single-family home selling for $500,000. In Canada, government regulation requires that you come up with a minimum 10% of the property value (price) as downpayment to quality for a residential real estate mortgage. That means you’d need a downpayment of $20,000 (10% x $200,000) for the apartment unit versus $50,000 (10% x $500,000) for the single-family home. If you are like most people, the $20,000 downpayment might be attractive and more affordable for you.

Smaller mortgage loan
Given the lower average value of an apartment unit versus the average value of a single-family home, you would need a much smaller mortgage loan for an apartment unit compared to a single-family home, and you’d need to make significantly less monthly mortgage payments. Using the same example above, the mortgage loan for the single-family home would be $450,0000 ($500,000 – $50,000) versus $180,000 ($200,000 – $20,000) for the apartment unit. Again, most people might find the $180,000 loan a more manageable debt to carry, especially where both loan amounts can only buy just one rental property.

Mortgage payments. Assuming the following lending conditions: Interest rate – 5.25%, semi-annual compounding; monthly payments; amortization – 25 years. Your monthly mortgage payments would be roughly $1,073 for the apartment unit versus $2,682 for the single-family home. Once again, most people might find the smaller mortgage payment amount ($1,073) more affordable.

Affordable investment
The lower upfront cost and the smaller mortgage loan make investment in rental apartment units less expensive compared to single-family homes. Making investment in apartment units more affordable for budget investors.

Affordable property management
If the rental unit you purchase is a turnkey property, you can get professional property management services which can be less expensive compared to fees for the management of a single-family property. The reason for the lower property management fees for turnkey properties is because the property management company gives a discount for managing multiple units under one roof. The savings from this discount is then passed onto the property owners.

Diversification
Buying an apartment unit for rental offers the opportunity to diversify your real estate portfolio by spreading your money across multiple properties. For example, say you have $60,000 cash to invest. Rather than spend the whole $60,000 as downpayment for just one single-family property, you can use it to finance the downpayment on three apartment units. This way, you get three properties generating three rents (multiple income sources). You can also invest in different locations and markets.

Faster growth
Because you get more properties per downpayment (deposit-to-value ratio) for apartment unit purchases compared to buying single-family homes, you can grow your real estate portfolio faster with investment in apartment units.

Consolidation
Once you have acquired a few apartment units, you can sell your units and purchase a small apartment building – so that you can have all your units under one roof. You can repeat this cycle from time to time, depending on your preferences.

Summary
As we have seen, you don’t need huge capital to invest in real estate. You simply need to find the ideal property that suits your budget. And you can become a real estate investor and be on your way to building wealth and financial freedom for a great retirement future.

If you don’t have a massive amount of cash to invest, if you are looking for income property opportunities that fit your budget, Select Properties can help. At Select Properties, we help investors like you to gain financial freedom through buying and owning income property. We offer opportunities to buy and own affordable, turnkey income-generating properties in the Ottawa area that provide durable monthly cash flows. What’s more, our unique service package includes 100% direct ownership of your property, an optional vacancy loss protection plan, and hassle-free property management service.

Contact Select Properties today to learn more!