Investing in apartment complexes is a lot different than investing in any other type of building or unit. In fact, you wouldn't solely be investing. You'd be on your way to starting a career managing the building itself.
It goes without saying that managing a multi-family unit requires a more 'hands-on' approach than managing a single-family one. From maintenance to leasing and from subletting to construction, several factors differentiate apartment complex investments from any other type of real estate investment.
However, they come with their own set of unique benefits which make them top contenders as part of any investing strategy.
As with any real estate investment, the first question you need to ask yourself before making an offer on an apartment building is whether it’s the right fit for you or not. Managing an apartment complex varies in several ways from managing a single-family unit, primarily when it comes to costs and involvement.
Besides making the initial capital investment on the building, there is an ongoing cash flow matrix that goes along when managing several tenants at a time. Also, given the fact that you would have to manage several tenants at a time would require taking on a more active role. You would have to make time from your schedule to tend to 'apartment-related' issues, such as; leasing paperwork, maintenance, and tenant turn over.
Needless to say, owning and managing an apartment complex is no easy feat. Make sure your schedule and finances are flexible enough to accommodate the investment before making one.
Once you've decided on investing in an apartment complex, the next step is to determine the sort of building to invest in. From multi-story buildings in a hustling Metropolitan to refurbished units in a Victorian-esque property in the country, apartment buildings come in all shapes and sizes. Considerations for each form would understandably be different when it comes to pricing, construction, maintenance, etc.
Take finances (initial capital as well as ongoing costs) into consideration and measure them with return on investment from that property. This will help in narrowing down your options and selecting an apartment complex best-suited for you.
Having finalized on the sort of apartment building you would want to invest in, the next step is to find that particular one. You could either go about the hunt on your own or with the help of a professional. There's also the option of having both. For example; when networking with fellow realtors or investors, you're expanding your search and connecting with people who know about properties up for sale.
Networking, however, isn't as quick of an option as hiring a professional or service. While they might charge more commission fees on commercial property listings, they also give you access to multiple listings simultaneously.
It's important to remember that the only thing separating you from a deal of a lifetime and a disaster is your due diligence. Once you've decided on a property, you need to critically evaluate the apartment complex: buildings condition, amenities, number of units, etc. The existing condition and architecture of the building set a crude estimate for the amount of money you would be investing for ROI's on the property after the initial capital investment is made. Furthermore, you'll be able to determine how much rent should be charged based on the geographic location of the building and several other socio-economic factors. Lastly, hire an inspector and obtain copies for legal documents such as leases and tax return documents from the previous owners.
The offer you make on a property comes after the building has been appraised and the cost is weighed with the potential income the building is expected to generate. If the final offer is above the budget, you would have to secure a loan. Given that properties with over five units do not qualify for government-backed loans, you would have to acquire commercial loans from private lenders.
Private and traditional lenders are more likely to emphasize the potential income generated and not on an investor's credit history or financial situation. However, they do require cash reserves when favoring properties with better market potential.
Before making an investment and putting in a hefty sum into any property, investors should familiarize themselves with the pros and cons associated with it. When it comes to investing and subsequently owning an apartment building, there's a list of advantages and disadvantages to committing.
The principle advantage of owning an apartment building is that you're never at a complete loss when there is a vacancy (compared to single-unit properties). To put it simply, even if one tenant decides to move out, rent incurred from the other tenants is still sizable enough to avoid out of pocket expenses, or even a foreclosure.
Another attractive advantage is property appreciation. This can be led by adding amenities such as increased parking space, centralized systems, or other property appreciating changes. Hence, if and when you decide on reselling the property you'd be making more money on it.
The main downside of owning an apartment building is the difference in tenancy and the tenant's management of the property. A family would quite understandably prefer moving into a home residence as opposed to an apartment. With kids, schools, and jobs, families are seen as long-term tenants. As a result of which tenants in single-family units are more likely to think of the property as their own and take care of it.
On the other hand, apartments have a higher turnover with tenants. These tenants tend to stay for shorter periods and therefore are less likely to treat the property well. Maintenance costs are therefore often more than expected.
Apartment complexes are more career opportunities than they are investment strategies. There are several considerations to be made before putting up money into buying a multi-story unit. It's also essential for prospective buyers to go through the advantages and disadvantages associated with making such a commitment. We're here to help you make informed decisions on all your investment opportunities that best fit your budget and objectives. After careful analysis with our tea of trained professionals, you'll know the ins and outs of making a good investment with the best ROI's!