How to Buy Apartment Buildings

Regardless of current market conditions, real estate is typically considered a solid investment, at least as a way to diversify your portfolio. The question isn't whether or not you will be able to generate income from real estate, but how quickly the return on your investment will materialize. One way you can make money from real estate is by purchasing apartment buildings.

An apartment building is a unique real estate investment in that it provides residual, continuous income, as long as units have tenants. When you purchase apartment buildings, you don't have to worry about whether you will be able to flip it immediately because that usually isn't the goal. Instead, you want to find renters who are willing to sign a lease in exchange for a place to live, which is why apartment buildings are often successful when other real estate investments fail.

Locations for Apartment Buildings
One of the primary considerations in buying an apartment building is its location. This will determine how many renters are interested in your property, as well as how much they are willing to pay for rent. Ideally, you want your apartment building to be as close as possible to the things your renters will need or want on a daily basis, such as

  • Bus stops
  • Grocery stores
  • Fast-food and sit-down restaurants
  • Major highways
  • Post offices
  • Laundry facilities (if not on site)
  • Public parks
  • Gas stations

If you think that your renters will have children, you might also want to buy apartment buildings that are located in top-notch school districts or where numerous child care options are available. An apartment building will be more popular if it is in an area of low crime and relative financial stability. You should make sure that the areas surrounding it are well-lit and welcoming.

Once you know where you want to start looking, research the market so you know how much rent to charge as you bring in tenants. Overcharge, and you'll have a tough time finding tenants. Undercharge, and you'll lose money in a big way. Also set aside plenty of money in your budget for vacancies because there will be times when rent isn't coming in.

Condition of Property
When you buy apartment buildings, it is always easier and more economically sound to find properties that are well cared for and ready to be occupied. An apartment building that needs significant work will not only cost more money in restoration and repair, but it will also create a delay between the date of purchase and the date when you finally begin to generate income.

Little things, such as missing light fixtures or outdated appliances, might not constitute much of a problem when buying apartment buildings. Larger repairs, however, can drain your budget and put you in debt, making it more difficult to turn a profit.

Also consider the raw material when looking at apartment buildings. Even if you are in a position to dump a substantial investment into the property, there must be room to grow, develop and maintain. For example, if the parking lot at an apartment building is too small, there must be room to put more parking spaces, or the problem will never be resolved and potential tenants will notice.

Extras
According to David J. Lewis of AllCities.org, you might think you are buying more in apartment buildings than what you actually receive. Property other than the actual buildings and land, such as appliances in the apartments and maintenance equipment, might not come with the deed.

If you want to purchase these extras, you must specify as much in your purchase agreement with the seller. He must be willing to sell you the apartment building as well as all of the equipment needed to run it, or you will have to purchase those things separately. When looking at apartment buildings, make sure to bring this up so you don't waste time on a property that won't meet your needs.

Consider Size
If you have purchased and rented single-family properties in the past, do not assume that this will prepare you for buying apartment buildings. The two are completely different. Not only do apartment buildings have more space and therefore require more effort in maintenance, they also have more tenants, which means more work for the landlord or management company.

A single apartment building might have 500 units, which means that it is conceivable for 500 families to move onto the property. Managing that number of people takes skill, patience, time and plenty of employees to bear the workload. Don't bite off more than you can chew. If you can't handle it yourself, you'll need to hire a property manager, which can reduce your profits.

To avoid this situation, look for apartment buildings for sale that rest within your comfort zone. For example, you might feel comfortable managing only 20 tenants at first, so a small complex would be ideal. If you have more experience, or if your partners are experienced, a larger property might be in the cards.

If you are going to buy apartment buildings, you are well advised to work with an experienced broker who has handled similar transactions in the past. Do not attempt to work as an autonomous agent with the seller's agent because he is looking out for the seller's best interests. Instead, shop around for apartment buildings with the guidance of someone who wants what is best for you.

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