Dear MSM Reader,

Investing in multi-unit buildings can be a great way to generate passive income, but you can supercharge their profits if conditions are right. In today’s issue, Apartment House King Dave Lindahl discusses the five advantages of investing in multi-unit properties, plus a sixth “hidden” benefit that can give you five years’ worth of appreciation in just one year.

The "Hidden" Advantage of Apartment House Investing

By Dave Lindahl

I’ve always focused on investing in apartments first, and then on single-family rental homes as a means of getting more multi-units. Not only do apartments generate a greater dollar amount of appreciation at a given rate, they also throw off far greater cash flow.

When I began investing, I quickly realized that there are five main advantages of investing in multi-unit buildings instead of single-families. But in time, I realized there is a bonus advantage - a sixth, hidden way that multi-family buildings can make me even more money.

But before I reveal that secret sixth benefit - let me first tell you about the five immediate advantages:

1. Cash Flow

Cash flow on a multi-family property is always greater than on a single-family property, simply because you have more rents coming in.

The more units you have under one roof, the less risk you have. If you have a single-family house and you lose your tenant, you’ve lost 100 percent of your income. In some instances, this could be your entire profit for the year. But if you have a three-family and lose a tenant, you still have two rent checks coming in to pay your expenses.

2. Economies of Scale

If you have six single-family houses, you have six roofs to replace or repair, six lawns to maintain, six tenants spread out around your city or town. In a six-family apartment building, you have one roof and one lawn, and your tenants are centrally located. Economies of scale are in your favor.

3. A Lot Less Competition Far more people invest in the single-family market than in apartment buildings. Why? Because no one is out there teaching people how to invest in multi-family properties. The smart investors are those who put multi-units in their portfolios along with single-family houses.

4. Less Work

Because of the bigger cash flow, you can afford to hire management companies to manage your apartments, thus eliminating the hassle of landlording. Instead, you spend your time doing what you do best (or should do best): finding and financing more properties.

5. Bigger Paydays

Because an apartment complex costs more than a single-family home, it appreciates more on a yearly basis. For example, a $100,000 single-family house in a market that appreciates 10 percent will be worth $110,000 a year later. Meanwhile, a three-family house worth $300,000 in the same market (10 percent appreciation) will increase to $330,000. That’s $20,000 more money in your pocket!

The sixth, hidden advantage to investing in multi-unit properties is related to your payday when you sell. You can actually create your own appreciation in a way you never could with a single-family house.

The "Hidden" Technique for Converting Your Apartments Into Goldmines

The sixth, hidden advantage of investing in multi-family properties is the ability to do Condo Conversions. It didn’t take long for me to realize that by converting my multi-family properties into condos for individual resale, I could see five years’ worth of appreciation in just one year.

While condo conversions aren’t right for every market, they are often the perfect way to exit an emerging market. Condo conversions are also a great way to enter a market that’s so far ahead in the market cycles that properties are selling with little or no cash flow.

I typically look for a 40 percent return before I leave a market for the next emerging market, and that usually takes three years to accomplish. Condo converters regularly get returns like this and better - much better - in hot markets. Those are the same markets that we as multi-family investors have turned our backs on.

Eric Freund, a student of mine from the Chicago area, has been living in an overheated market for the last couple years. Similar to most investors in his area, Eric has seen firsthand that apartment prices are just not making any sense. To overcome that major objection, Eric decided that the best strategy was to do condo conversions. After learning how to do it, Eric found a 10-unit apartment complex that had a tremendous conversion possibility - and since completing that conversion, he has seen a profit of over $650,000!

Thanks to two trends - the rise of non-traditional families and the aging baby boomer population - we are in the infancy of the "Condo Conversion Era." Mark my words: These two groups will increase the popularity of - and need for more and more - condominiums as the years go by. We are at the ground floor of the need level for this type of housing.

Here are the basics of profitable condo conversions:

1. Learn the specific condo ordinances in your market. These regulations exist mainly to protect the tenants, and you need to follow them closely to avoid big trouble.

2. The affordability index (i.e., the ability of the average worker to afford a home) must be low in the area where you invest. You are essentially providing an alternative to high-priced housing - and if you’re in the wrong neighborhood, you’ll be competing with low-priced single-family homes.

3. At the outset of the deal, you’ll need "interim financing" and a commitment from a good quality lender for "end loan" financing, so you can cash yourself out at the end.

4. You’ll need to determine whether a deal is truly a good deal or a money pit. As a rule of thumb, you don’t want to get into a conversion that has less than a 30 percent cash-on-cash return. Keep in mind, though, that the returns can be much higher.

5. You’ll also need to determine the most effective techniques for marketing your complex, so you can achieve "sell out" in the shortest amount of time. This includes marketing to current renters as well as to the general public, and deciding how to structure your sales force (in-house team or real estate agency).

I know this sounds like a lot to do, but conversions are much simpler than you might think … if you have the proper guidance . If you are interested in creating more wealth at a faster rate, condo conversions are a great way to do it. Remember: The faster you go big, the faster you become wealthy!

[Ed. Note: Dave Lindahl (the "Apartment King") has rehabbed over 521 properties in the last nine years and collected more than 1,811 apartment units. If you think your local market is ripe for condo conversions, and you want reap the profits, take a no-risk look at his Condo Conversions Course

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Use Property and Tax Rolls to Uncover Untapped Potential

Besides the basic sales and tax data on the property, some county property tax records will include other helpful information, such as zoning information. You might find a property that appears to be a single-family residence is actually zoned for multi-unit occupancy, or may even have dual commercial/residential status. This kind of information can be a great help.

For example, and investment partner and I once bid on an 8-unit residential property. It was a good deal as a residential property, but the fact that it also had commercial zoning added the possibility of eventually moving one of our growing businesses into the building. That helped limit our risk on the deal and increase our income possibilities.

[Ed Note: Main Street Millionaire is a program designed to take you from your first deal through your step-by-step system on how to purchase cash-flow properties below market value and use creative financing techniques to close the deals with the least amount of expense, time, and risk.]