Apartment Buildings are the classic Value Investment

With today’s stock and bond markets overrun by insiders and the volume of options, futures and other derivatives dwarfing actual investment in good companies while driving wild swings in their prices what is a traditional value investor to do? What about the accounting trickery that happens when CEOs raid their own companies for the short term results their huge bonuses are based on? Should you shrug your shoulders and be patient, very patient hoping eventually value will be recognized? What kind of income will you live on while you are being so patient? With interest rates so low and the Fed trapped into keeping them that way how can you earn decent current income without taking unreasonable or unknowable risks?

There is an alternative for conservative value investors: Apartment buildings.

  • What if you could find good value stocks in a market where the price was dictated by the financial results, not market ‘sentiment’, momentum traders, short sellers, high frequency trading programs or what a butterfly did in Shanghai?
  • What if you could find good value stocks in a market where the cycles were observable and understandable?
  • What if your favorite value stocks paid annual cash dividends of 7, 8, 9% or higher while at the same time increasing their equity like clockwork?
  • What if you could walk into the boardroom of your favorite value stock and dictate that they improve their performance? What if you could fire boardmembers who didn’t perform?
  • What if you could buy a second stock with funds from your first stock without having to sell it or pay taxes on the capital gain?
  • Plus Inflation Protection: What if the dividend went up when inflation did?

If those stocks were apartment buildings you would enjoy all these advantages and more. And the best part is the skills and knowledge you learned as a value investor in the stock market can be transferred to apartment investing with a little help and that’s what this book is all about.

Apartments are the classic value investment for low risk investors because they produce predictable income and their value is based on that same income. Since that income is generated by each apartment unit in the property the risk of losing that income is divided among all the tenants. In a twelve unit building each tenant represents 8.33% of the income stream; in a 60 unit building each tenant represents just 1.66% of the income so losing one tenant won’t wipe out your entire income the way other real estate investments such as a rental house or a commercial building can.

Apartments actually produce returns three different ways. The first is current income from operations, the second is from the amortization of the loan; the tenants pay your mortgage down for you! If you’ve ever wished that someone else would pay your mortgage now you can make that a reality and have the equity in your property go up every month. The third source of returns is from what’s called ‘forced appreciation’. This happens when you improve the property creating opportunities to raise rents and therefore value. As a bonus there are depreciation deductions available for apartment buildings that can offset income. One of my tax professors always said don’t let the tax tail wag the investment dog but apartment building depreciation can be very helpful for high income investors.

To learn how you can profit from the advantages of apartment building investment send an email to giovanni@ashworthpartners.com. To start analyzing apartment investments the professional way we use everyday go to our DEALIZER page.

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