There are several types of apartment buildings, each with a different purpose, price point, and potential tenant.
Many real estate investors choose apartments or multifamily buildings over single-family homes and other types of commercial real estate because of overwhelming financial benefits.
Multifamily and mixed-use properties will almost always experience positive cash flow thanks to having multiple tenants.
Plus, apartment buildings can be written off on taxes, leading to a zero tax burden over time.
Before investing in a multifamily property, it’s essential to know the different types of apartment buildings, the pros and cons of each, and how you can find a property that meets your needs and goals. See all of that here.
Types of Apartment Buildings
Apartment buildings and multifamily properties are defined as any residential space in which two or more units occupy the same property.
Some apartment buildings only have a handful of units while larger buildings in metropolitan areas might be dozens of stories tall and house many hundreds of tenants.
Both new investors and seasoned real estate tycoons know that multifamily properties can be a fantastic return on investment if purchased wisely.
The general classification of an apartment building is usually by its size.
The three main size distinctions include low-rise, medium/mid-rise, and high-rise, based on the number of floors and units in the building.
Low-Rise Apartment Buildings
When you think of apartment buildings in suburban areas, you’re likely picturing the standard low-rise apartment complex.
These structures are usually four or fewer stories high (some classifications define it as three or fewer stories) and may or may not have elevators.
There may be only one building or several, spread out over a large area.
|Examples of Low-Rise Apartment Buildings:|
|● Apartment complexes with four or fewer floors per building|
|● Row houses|
|● Duplexes or single-story multiplexes|
|● Garden-style complexes|
|● Senior or subsidized housing|
Low-rise apartment buildings offer plenty of parking for residents, and some provide garages for an additional fee.
They also typically offer accessibility options for disabled or elderly residents.
Low-rise apartment complexes often allow tenants to negotiate lease terms more readily than others.
These properties feature fewer amenities than their high-rising competition, leading some apartment-dwellers to choose mid-rise or high-rise properties instead.
Low-rise apartment complexes, townhome units, and single-story multifamily properties are a more affordable option for real estate investors, but also yield smaller returns.
Mid-Rise Apartment Buildings
A study released by the City and County of Denver defines mid-rise or medium-rise apartment buildings as a multifamily structure with between five and nine stories.
These structures typically feature at least one elevator and are found in both urban and suburban areas.
Mid-rise apartments are increasing in popularity among builders, investors, and tenants.
|Examples of Mid-Rise Multifamily Structures:|
|● Urban apartments and condos near busy city centers.|
|● Suburban apartments and condos near shopping and entertainment districts.|
|● College dormitories|
|● Condo buildings|
|● Senior housing complexes|
|● Affordable and subsidized housing complexes|
Mid-rise buildings are a reasonably cost-effective solution for developers; by creating more units per square foot of land, investors will see a more substantial financial return.
The compact spaces also mean sustainable living solutions that are better for the environment. They’re easy to build, easy to lease, and gaining in popularity each year.
Tenants love mid-rise apartment buildings because they are generally within walking distance of shopping, restaurants, and other entertainment options and are close to transportation hubs.
Because mid-rise complexes aren’t typically in city centers, they’re often quieter and more private than high-rise buildings.
These properties are low-maintenance for tenants and usually offer amenities like a pool, gym, common areas, and even green spaces.
More and more young people are choosing mid-rise condos and apartments over single-family homes.
As urban areas see a population boom, mid-rise complexes are becoming the norm. Many investors are cashing in on this trend by purchasing land and developing mid-rise apartment complexes or mixed-use buildings.
High-Rise Apartment Buildings
High-net-worth investors purchase the mother of all multifamily properties: the high-rise apartment complex.
A high-rise is any building with ten or more stories, typically located in busy metropolitan areas.
In cities where open land is scarce and expensive, high-rises can create effective housing solutions on a relatively small plot of land.
They’re constructed with reinforced concrete and steel.
|Examples of High-Rise Apartment Buildings:|
|● Luxury apartments in city centers|
|● Long-term rentals and hotels|
|● College dormitories at large campuses|
|● Subsidized or senior housing in densely populated cities|
High-rise complexes have long been the norm in large municipalities like New York City, San Francisco, and Chicago, but they’re becoming increasingly popular in mid-size cities throughout America.
As more and more people move towards the city center, developers see the need for taller structures with more units, creating more significant wealth-building potential for investors.
High-rise buildings turn a relatively small plot of land into a towering multi-family residential solution.
However, these structures aren’t without their challenges. Parking can often be a hassle, and developers must build adequate parking structures beneath the apartment complex.
Building and maintaining high-rise buildings can be expensive; structures must meet strict safety standards. In an emergency, these crowded spaces and many flights of stairs could mean disaster during an evacuation.
Plus, buildings must be able to withstand high winds, earthquakes, and severe storms depending on the location.
Even with the potential challenges, though, for the motivated investor, high-rises can be a very lucrative venture.
Many of these structures feature luxury apartments on the top floors, bringing in an incredible amount of capital every month. The high volume of tenants also provides positive cash flow.
Combine the income with the tax advantages, and high-rise apartment investments can prove to be extremely profitable for investors.
Many cities and suburbs feature shopping districts with mixed-use buildings. These structures can be two or more stories, from low-rise complexes up to towering high rises.
Just as the name suggests, mixed-use buildings serve multiple purposes: commercial, residential, parking, office space, industrial or recreational.
As mixed-use zoning laws relaxed in the 1990s, developers began reimagining multifamily complexes, creating spaces that serve a variety of functions and therefore provide diverse opportunities for revenue.
|Examples of Mixed-Use Apartment Buildings:|
|● Urban centers with shops on the bottom floor, office space on the second floor, and apartments on the remaining floors.|
|● Suburban communities with multifamily residential space, restaurants, and shopping all on the same street.|
|● Higher education centers with classrooms on the ground floors and housing on the top floors.|
Mixed-use properties fall into two categories:
1. Vertical mixed-use properties are typically mid- or high-rise structures with multiple stories.
The bottom stories house businesses, storefronts, or other commercial tenants while residential apartments fill the remaining floors.
This is the most common mixed-use property, but it’s not the only type.
2. Horizontal mixed-use properties, on the other hand, might be only a few stories high, but spread out in a horizontal space.
Businesses might occupy one end of the property, while residential units occupy the other.
Mixed-use buildings benefit both businesses and residents. Businesses have a built-in customer base nearby, and residents have easy access to shopping.
This convenience is one reason mixed-use properties have become so wildly popular over the past two decades.
How to Invest in Apartment Buildings
Whether you’re looking to invest in a small duplex or a soaring high-rise, it’s vital to do your research.
Multifamily properties, apartment buildings, and mixed-use properties can all be successful additions to your investment portfolio.
Some investors choose to purchase empty land and build a development. This strategy allows you to control your investment from the ground up, sensibly constructing a community that creates unlimited earning potential.
Other investors purchase existing properties, either directly or through investment trusts (REITs).
However, due to the high demand for multifamily and mixed-use properties, competition is fierce, and these properties can be hard to find.
To learn more about how to find on-market multifamily properties, check out our guide, “Guide to Finding Targeted Multi Family and Commercial Investment Properties.”
If you wanted a competitive edge in the multifamily investment game, you can increase your chances of landing a property by searching off-market.