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What Are the Different Types of Apartment Buildings?

Posted by Emily Lemere on August 20, 2021
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Investing in real estate can be one of the most reliable ways to increase your wealth. In particular, long-term residential rentals tend to be an excellent financial strategy. Whether you have enough extra income to afford a mortgage on an investment property or have substantial capital to invest in a major real estate portfolio, buying an apartment building is worth exploring.

However, before you invest in real estate, it is a good idea to understand the different types of apartment buildings. There are a few ways to describe apartment buildings, but the most common is the number of floors and units.

Low-Rise Apartment Buildings

A low-rise apartment building is defined as having four floors or fewer (some classification structures say three floors or fewer). Typically, these buildings are relatively spread out over a large amount of land, especially relative to the number of units.

A suburban apartment complex is an excellent example of a low-rise apartment building. In such an arrangement, there are typically multiple buildings with only a few floors each. These may be connected or separated, depending on the design. Other low-rise buildings include townhomes, rowhouses, duplexes/triplexes/quadplexes, garden-style complexes, and many 55+ communities.

In most cases, low-rise apartment buildings do not have elevators unless the building was designed or renovated to accommodate people who may have difficulty with stairs. Furthermore, single buildings often do not have many amenities. Some buildings have shared laundry facilities if the individual units do not have laundry machines. However, apartment complexes with multiple buildings may have communal pools, recreation rooms, and other such perks.

Typically, low-rise apartment buildings are very accessible to investors because they are less expensive. There are also lower expectations of providing amenities compared to other categories. However, they may yield lower returns in many cases.

Mid-Rise Apartment Buildings

Mid-rise apartment buildings are those with between five and nine floors. They often feature at least one elevator. Increasingly, investors, builders, and tenants are all choosing mid-rise apartment buildings as their favorite among the types of apartments.

You can find mid-rise buildings in both urban and suburban areas. They are commonly used as apartment complexes near city centers, apartments, and condos in higher-density suburban areas, college dorms, hotels, affordable housing, and condo buildings. Frequently, mid-rise apartment buildings offer excellent access to shopping, entertainment, and restaurants.

Tenants tend to love mid-rise apartment buildings because they offer a good combination of affordability and access. They are also relatively low maintenance for the tenants and may have amenities such as pools, gyms, and green spaces. In particular, younger renters prefer these buildings to single-family homes.

Investors and builders also like mid-rise buildings because they tend to offer some of the best returns on investment. Compared to low-rise apartment buildings, they require much less land per unit. However, they are not subject to the expensive permits and building costs of high-rise buildings. As more and more people are moving to urban areas, mid-rise apartment buildings have become very lucrative.

High-Rise Apartment Buildings

The final size-based category is high-rise apartment buildings. These are any buildings that are at least ten floors tall. They are almost exclusively found in urban downtown areas. They are ideal for places where land is very expensive, and there is a high population density.

Typically, high-rise apartment buildings are used as luxury apartments or condominiums in city centers. They may also sometimes be used as extended-stay rentals or hotels. Larger college campuses may have high-rise buildings for their dormitories.

Nearly all major cities throughout the U.S. have had high-rise buildings as an established form of multiunit residence for many decades. However, as cities attract more and more people, high-rise apartment buildings are entering the mix of types of apartment buildings available in mid-size cities.

Compared to the amount of land needed, high-rise buildings offer an enormous return on investment. However, they also have very expensive construction needs and may require special planning permission from the city. They often take multiple years to complete. Therefore, they are best suited for very high net-worth investors and institutional investors. Furthermore, the rents on the units are often quite high. Thus, the units are often offered as relatively luxurious options.

Mixed-Used Buildings

Although this classification is not related to the height of the building, it is an important one to know. Mixed-use buildings are those that have multiple types of tenants. They may have residences on the upper floors and businesses such as stores and restaurants on the lower floors.

Technically, a mixed-use building is any property that serves multiple purposes. Thus, any mix of commercial, residential, and industrial tenants would satisfy this definition. However, the most common combinations are residences with retail stores, service businesses, parking lots, or hospitality businesses on the ground floor. Many high-rise buildings may have residences and office spaces.

Some mixed-use buildings have different types of tenants spread out horizontally rather than vertically. For example, a building may have businesses at the front and a residential complex behind them.

Mixed-use buildings are common in many areas, including city centers, suburban communities, and college campuses. They offer easy access to businesses for residents and built-in customers for the businesses. For example, a restaurant at the bottom of a residential building is a very symbiotic arrangement. Investors like these setups because they can attract more diverse tenants, offering more occupancy stability in many cases.

How To Invest in Apartment Buildings

Regardless of which type of apartment building you may be interested in, investing in apartments can be a very lucrative path to follow. From small duplexes to large high-rises, researching your investment and making carefully informed decisions will help you get more from your real estate undertakings.

For most individual investors, purchasing a low-rise apartment building or a few condos in larger buildings for renting out is the most attainable option for direct real estate investing. This is an effective strategy and could be the starting point for a more expansive real estate portfolio.

Alternatively, you may consider investing through a real estate investment trust. In a REIT, multiple investors capitalize a trust that they then use to purchase properties. This can allow investors to make much larger acquisitions or hold a diversified portfolio of multiple properties. Of course, it also reduces the flexibility you have in making decisions.

Once you have invested in a property, you will need to manage it. Landlords with only one or a few units may want to do this themselves. If you have a larger portfolio or are investing through a REIT, you will likely need a property management company to help you.

Learn More About Investing in Apartment Buildings Today

Whether you want to purchase an investment property, need help leasing it, or both, Unique Properties can help. We work with all types of apartment buildings in the Denver, Colorado, area. Our extensive experience in real estate sales and leasing helps us achieve superior results for our customers. Contact us today to learn more about our services.

Featured Image: Adiss Alic/Shutterstock

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