Apartment buildings (5+ units)

A multifamily building (5 or more units) is a business as much as a home. Its value comes from net income: the rent collected minus vacancy, repairs, taxes, insurance, utilities, staff and management. Lenders and buyers price the building on that income, so a few empty units or a jump in costs changes what it’s worth.

Buildings with 5+ units are usually financed with commercial loans, not regular home mortgages. The loan terms decide whether you survive a bad year: fixed or floating rate, how long, and how much the income must cover the payment. In 2022–2023, many owners who had bought Sun Belt apartments with short-term floating-rate loans saw payments rise far faster than rents, and lost buildings to foreclosure.

Many beginners invest through a “syndication,” where a sponsor pools money from passive investors to buy a large complex. You own a share but have no control, and the sponsor collects fees whether or not you profit. If the deal fails, you can lose all of your money.

Who it suits

Patient, long-term owners who want steady income and can hold through slow years. Utah’s Housing Preservation Fund, for example, buys older complexes and plans to hold them indefinitely.
Buyers with enough cash reserves to cover vacancies, big repairs and higher interest costs without missing a loan payment.
People who will manage hands-on, or who pay a professional property manager and check the books monthly.
Mission-driven buyers (nonprofits, land trusts) who want to keep rents stable for current tenants and can use public or charity money.

Who it doesn’t

Anyone counting on fast rent increases to cover a loan payment that is bigger than today’s income.
Passive investors who cannot afford to lose the whole investment, and anyone who cannot read a syndication’s offering documents and loan terms.
Owners who plan to cut maintenance to make the numbers work. Tenant complaints, code cases and empty units follow, and the value falls.
People who want a quick flip. Apartment buildings are hard to sell fast in a falling market.

Real stories

Floating-rate loans cost a syndicator 3,200 Houston apartments (2023)

Applesway Investment Group bought four Houston apartment complexes with more than 3,200 units during the pandemic boom, using floating-rate loans. When the Federal Reserve raised rates, the loan payments soared faster than rents. The lender foreclosed on all four complexes in April 2023, and the company’s investors lost their money.

Lesson: A loan whose payment can rise is a bet on interest rates. Check what happens to the deal if rates double. Wall Street Journal (summary via MBA Newslink): Houston Apartment Owner Loses 3,200 Units to Foreclosure as Multifamily Feels the Heat (Apr. 11, 2023)

Investors say their money went to a different deal (2023)

A group of 123 investors gave a syndicator $12.4 million to buy a 643-unit Houston complex. Their lawsuit says the purchase never happened, and that the money was quietly moved to a larger deal that collapsed and the deposit was lost. Some had used retirement savings. When this was reported, the claims were allegations in a lawsuit.

Lesson: Passive investors have little control. Check county records to verify the property was actually bought, A syndication can lose all the money in it, so weigh how much you could lose against your own finances and risk tolerance, and have a qualified professional review the offering before you invest. Bisnow: Multifamily Investors Sue Troubled Applesway Over Alleged $12.4M Fraud (May 30, 2023)

Las Vegas complex heads to foreclosure auction (2026)

The owner of Tides on Twain, a nearly 200-unit complex near Boulder Highway, fell behind on the loan. A notice taped to the leasing office said the owner owed nearly $43 million and the property would be sold at public auction. Residents said nobody had told them.

Lesson: Heavy debt on an older complex leaves no room for error, and the tenants feel it too. In Nevada, the 60-day notice rule after foreclosure covers only homes with up to 4 units (NRS 40.255), so tenants in a large complex rely on federal law: they can stay until the lease ends, or 90 days after a notice to vacate if that is later. KTNV Channel 13 Las Vegas: Tenants’ futures uncertain after Las Vegas apartment complex foreclosure (Feb. 11, 2026)

Inflated purchase price ends in prison sentences (2025)

Investors bought the Williamsburg of Cincinnati apartment complex for $70 million in 2019. But they showed the lender and Fannie Mae a fake contract for over $95 million, which got them a loan of more than $74 million, more than the real price. In 2025 two of the managing members were sentenced to prison for wire fraud conspiracy.

Lesson: Always check the true sale price and get an independent appraisal. Numbers in a sponsor’s pitch can be false. U.S. Department of Justice: Four Real Estate Investors Sentenced in Multimillion-Dollar Loan Scheme (2025)

Buying an older complex and keeping it affordable in West Valley City (2022)

The Utah Housing Preservation Fund bought the 90-unit Aspen Village complex in West Valley City, Utah, and renovated the units. It kept two-bedroom rents around $1,100 when nearby rents averaged about $1,400. The fund buys older, sometimes run-down complexes before investors raise rents. It plans to hold them for the long term.

Lesson: Older apartment buildings suit patient owners who renovate carefully and are happy with steady income rather than a quick profit. Salt Lake Tribune: Utah’s housing needs are actually growing faster than the state. Here’s why and one solution. (Feb. 22, 2022)

Tenants win the chance to buy their buildings (2023)

Boston University inherited four apartment buildings in the Baldwin Hills area of Los Angeles. After tenants and the Liberty Community Land Trust organized for two years, the university accepted their purchase offer instead of selling to a developer. Some tenants had lived there for decades and paid under $1,000 a month for a two-bedroom.

Lesson: Mission-driven buyers like land trusts can be a good fit for older buildings when the goal is stability, not maximum rent. The price was not disclosed. GBH News: BU agrees to sell Los Angeles buildings to tenant group to preserve affordable housing (Jan. 10, 2023)

Costs

Debt service: with a floating-rate loan, the payment rises with interest rates. After the Federal Reserve began raising rates in 2022, one Houston owner’s floating-rate payments roughly doubled and then tripled (American Prospect).
California property taxes: a purchase normally triggers reassessment to current market value under Proposition 13, so the new owner’s tax bill can be much higher than the seller’s (California Board of Equalization).
Repairs and capital items (big one-time costs): roofs, plumbing, air conditioning, parking lots and unit turnovers. Older ‘value-add’ complexes often need more than the seller’s numbers show.
Vacancy and unpaid rent. Plan for some units empty and some tenants behind. Evictions take time and money.
Management, insurance, utilities paid by the owner, trash, pest control and security.
Sponsor fees, if you invest in a syndication: acquisition fees tied to the purchase price plus ongoing fees from rent. They get paid even if investors lose money (American Prospect, describing a lawsuit by 123 investors).

How people pay

Agency loans (Fannie Mae and Freddie Mac) are the main source of long-term, often fixed-rate loans for apartment buildings. They lend based on the building’s income, comparing its net income after operating costs with the loan payments. The required coverage depends on the program and the deal; gross rent alone is not the test.
Short-term ‘bridge’ or floating-rate loans let buyers borrow more and renovate first, but the payment can jump. Many 2021–2022 buyers who used them lost buildings in 2023–2024.
Syndications raise money from investors. The Wall Street Journal found syndicators reported raising at least $115 billion from 2020 through 2022.
Nonprofit buyers can combine private, charity and state money. Utah set aside about $30 million for the Utah Housing Preservation Fund.

Check before you buy

Get the rent roll and at least 2 years of income and expense statements. Compare them with bank deposits and tax returns.
Read the loan terms: fixed or floating rate, interest-rate cap and when it expires, maturity date, prepayment penalty.
Stress-test: can the building still pay its loan if occupancy drops 10%, and, on a floating-rate loan or at refinance, if rates rise 2–3 points?
Inspect every unit and the major systems. Check with the city or county for open code cases and tenant complaints.
For a syndication, check the sponsor’s past deals, lawsuits and record with securities regulators. Read how fees are paid and what happens if a capital call is needed.
Confirm the real purchase price (county recorder records) and get an independent appraisal. Fraud cases have used fake, inflated contracts.
Know the tenant rules in that state and city, and the federal 90-day notice for tenants after a foreclosure. In California, parts of the state have rent control. In Nevada, check the tenant protections that apply when a building changes hands.