When most of us consider investing in real estate, our minds usually focus around single-family homes or duplexes. The general opinion is that fixing and flipping these types of homes is more cost efficient and less of a hassle. This may not be entirely true. It’s actually quite a bit easier to occupy an apartment building than it is to rent a single-family home, and in most cases more cost effective. If you’re looking for more cash flow each month, you should look into investing in a complex located in a low vacancy area of town. Here are a few general tips to keep in mind when buying apartment buildings.
No matter what real estate road you travel down, you should make sure that you have already communicated with your bank first. Before you even begin your search and criteria check, you need to be pre-approved for a loan. This way you will know what your budget is and know how to shape your search for the most appropriate property. Also, don’t stretch yourself too thin. If your max budget is two hundred thousand, budget for ten percent less as a maximum expenditure.
Potential Cash Flow
Before buying a property, you will need to do a little research to see if the property meets a few minimal requirements. Basically, you need to see if it’s financially worth it for you to buy. You will want to look into the strength of the local rental market. Researching vacancy versus delinquency will help you to consider the potential income of the building. Ask questions like: What will the interest rate be on my financing and is it hard or conventional? What will the size of the down payment on this particular building be? Is this a class A, B, or C building? (Class C buildings have a higher tenant turnover rate than a class A or B building.)
Signs Of A Raw Deal
There are a few red flags you should learn to be wary of when looking to buy an apartment building. If the numbers don’t work out the way you want them to, or the seller won’t drop to where you feel comfortable, then move on. If the seller won’t give you the profit and loss numbers on the property for previous years, then move on. Bottom line, if the numbers are more just projections you should walk away from the deal. A bank won’t give two lucks to made-up numbers, and neither should you. One last red flag you should not overlook is time. How long has the property been on the market? Solid properties don’t sit on the market for months and months, so look into this and choose wisely.