Investing in real estate is a daunting task for many people, especially when starting out and you lack experience. It becomes more challenging when buying an apartment building. Increased responsibility and capital reserves are also needed to buy an income-generating apartment building.There is also more liability to be concerned about. Getting it wrong could lead to financial ruin that will be difficult to recover from. However, if you get it right, an apartment building can be a very lucrative and rewarding investment. Investors have more potential income from multifamily properties. They provide an opportunity to increase net worth faster.
If you are looking to buy an apartment building, you must consider the following:
Investing in commercial real estate is too overwhelming for one person. There are many complex tasks that need to be done before the actual purchase, many of which are best handled by different professionals. You need a reliable, trustworthy, and experienced team in your corner to ensure you make a sound business decision. The following people must be on your team.
a) Real Estate Agent – buying any type of real estate requires someone that can recognize a good deal the minute they see it. Learning to recognize a great deal takes education, research, and experience. Count on your commercial real estate agent for this. Hire a great realtor to help you find the apartment building that best suits your needs.
b) Real Estate Attorney – there are many legal processes to follow before purchasing an apartment building, such as SCC filings and setting up an LLC. You will also need a lawyer to explain your state’s laws applicable to tenants and landlords.
c) Accountant – you need a CPA with real estate experience who knows how file tax returns for multi-family units.
d) Mortgage broker – if you need financing, you will need a good mortgage broker with a great network to find you good deals faster.
Buying an apartment building requires a lot of capital. If you are well off, self-financing is the best option as you get to fully own the property without paying interest to anyone. If not, you have two options:
a) Equity Partners – A number of investors can pool their finances in order to buy the apartment building. All the investors get a share of the income, based on their capital contribution.
b) Loan – you may need help from a financial institution to finance part or all of the apartment building. This is where the mortgage broker comes in. With their help, you can find a loan with favorable terms.
In addition to the money you need to buy the property, you also need reserves in case of emergencies You must be ready for unexpected expenses when owning an apartment building.
The main reason why people buy apartment buildings is to rent apartments and collect income. As such, you need to investigate the market you are buying into to predict what’s likely to happen in terms of income expected, vacancy rates, and other important details. Find a good real estate agent to help you understand the market dynamics of the area you plan to invest in.
You need accurate, up-to-date income and expense statements for any buildings you are considering buying. Verify copies of leases and proof of rental payments. Leave no stone unturned. If the numbers don’t add up or there are missing numbers, move on.
Managing an apartment building is not something you want to do on your own. You need someone to deal with day-to-day tenant issues and, more importantly, someone who knows what needs to be done to protect the value and income-generating power of your investment.
Written by DorrianGrey, iWriter