For property investors, there really isn’t a bad time to buy new real estate. Investors can buy properties to resale when the time is right. Others buy investment properties to earn revenue. It doesn’t matter if it’s a house, apartments, and commercial property.
There are people that buy homes to rent but would never invest in a multi-family property. Both come with the same responsibilities. Buying an apartment complex can Bunk bed and provide a return on investment faster than a rental home.
If you have never invested in commercial property before, you’ll need to do your research. Consulting with a realtor and a seasoned property manager can’t hurt. Make sure you have a complete understanding of what you are taking on and what it will require.
Managing an apartment complex is equal to managing the same number of houses as there are units in the building.
Are you considering investing in an apartment complex? Keep reading for seven things you should consider before moving forward with the purchase.
1. Buying an Apartment Complex is a Big Investment
One question you’ll need to answer before you start looking for a complex is what size development you are looking for. A complex is typically any building that has five or more units. A complex can also have numerous buildings housing five to 30 units each.
When it comes to investments buying an apartment complex is expensive. Not only for the building but any upgrades or repairs it may need. Unless you are very wealthy, you’re going to need financing to fund the project.
There are several options available including various loans backed by financial institutions. Another popular option is private investors, also known as hard money loans. A private investor will not have stringent requirements like loans issued through traditional banks.
2. Tenant Occupied vs. Vacant
It’s possible to stumble upon an apartment building that is already full or near full capacity. This will take a lot of work out of the process. If you have a property that isn’t to capacity, you’ll have to focus on filling those units.
Too many vacant units could send a message there is something wrong with the facility or it isn’t safe. Before going this route, you should do extensive research to understand what the underlying issue may be. There could also be investors that are interested in buying an apartment building that has no tenants or has been shuttered.
Choose which opportunity is best for you, play with the numbers and move forward.
3. Hiring a Property Management Firm
Most property investors are not looking to be a landlord. They want to leave off the income that the property brings in.
Property management firms work with apartment complex owners to handle day-to-day operations. They do everything from screening applicants to collecting rents to maintaining the properties. You can also set-up a website and require tenants to make their payments and requests online.
Going with a property management firm has more benefits than obstacles. Choosing the right firm will alieve the stress of doing the operations on your own and hiring staff. You can move on to your next investment and wait for monies to hit your bank account.
4. Understanding the Profit Loss Accounting
Taking on a huge project like buying an apartment building requires a good look at the past profit vs. loss numbers. If the prior owner was unable to make a profit, you would want to understand why. The issue could be poor management, or it could be something bigger like a deteriorating community.
It is not a wise investment if you cannot come up with a plan to have better success than the previous owner. Pouring money into a project with visible signs of trouble is a bad decision.
5. What Clientele Will You Appeal Too
There is more to buying an apartment complex that changing the name and doing some upgrades. You’ll need to be specific about the clientele you hope to attract. The Phoenix Apartments in Washington, D.C. is a good example of a recently renovated complex geared towards professionals.
Not all apartment complexes are geared towards high-end renters. Some are built specifically as low-income or affordable housing. Going this route isn’t necessarily a bad thing. You can locate properties in community redevelopment areas and receive government funding to do the renovations.
Providing housing for low-income residents can also mean guaranteed rents from HUD.
6. Will the Need to be Renovated
More likely than not, the property you purchase will need to be renovated. Here is a list of investments you may need to make.
- Renew the exterior siding
- Replace the roofing
- Install flooring
- Upgrade HVAC systems
- Upgrade Kitchens
- Repave parking lots
- Resurface swimming pools
As you can see the list is extensive and this only scratches the surface. With these types of renovations and upgrades, you’ll need to be a market search to see if the area is prime for the renters you want to attract.
7. Are You Buying to Resale
The amount of investment you put into buying an apartment complex depends on your ultimate goal. Are you buying it because you want another stream of income? Or are you buying it with the intention of selling for a profit in five years?
This makes a difference because it will affect the type of property you buy and how much work you are willing to do. Someone can invest in an abandoned unit, remodel it and sell at a great return.
These are the properties that a hard money lender would be interested in backing. They know the return around will be fast and with great interest.
It’s Time to Invest
Buying an apartment complex is a great investment that can earn a lot of residual cash. Be smart in your decisions and don’t be afraid to seek expert opinions. Understand your market and target area before moving forward in the endeavor.
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