Have you been researching apartment investing because you’ve been planning on buying your first apartment building? If so, you’re making a smart choice.
Even though 2020 has been a tough year due to Coronavirus, social, and economic issues, the reality is that it’s still an excellent time to invest in apartments.
We live in an age where more people are choosing to rent than ever before.
Some people rent out of necessity because they cannot afford the down payment that’s needed to purchase a home. Others are choosing to rent apartments because they want to have fewer responsibilities than they did when they were homeowners.
Regardless of the reason, a renter nation means opportunity for investors who are able to capitalize on the demand for apartment buildings by adding apartments to their investment portfolios.
In this article, I’ll provide you with a blueprint that you can use for getting started with investing in your first apartment building.
Is Apartment Investing Right For You?
Before I take a deep dive into the steps that you need to follow for purchasing an apartment, the first thing I want you to do is to take a step back and absolutely be certain that purchasing an apartment building is the right choice for you.
Apartment Buildings are awesome Investments that produce excellent ROI but, they can require substantial capital to purchase them and ongoing cash flow to manage and maintain them.
If you’re not ready to purchase your first apartment building it’s best to put your goal of buying an apartment building on the back burner for a while until you’re ready to move forward.
Investors who jumped the gun and purchased apartment buildings too early in the past, often found themselves burned out after a few years and regretting their decision to purchase an apartment building.
It’s best to make sure that you are 100% ready to move forward with this purchase and that you know exactly what to expect from it.
Step #1 – Choose The Right Location
There’s nothing more important than purchasing real estate that’s in the right location.
This is a universal principle that applies across the board for every type of property including single family, residential, multifamily, and commercial properties.
Choosing the right location is critical during the process of apartment investing because the location of your apartment building is always going to make the difference between having all of your units occupied regularly or consistently having vacancies.
Your goal when identifying the right location should be to choose a city that’s been classified as an up-and-coming. Ideally this city will have more than one source of public transportation, be close to the highway, and also be within proximity to stores, restaurants, jobs, amenities, and things to do in the area.
The location for your apartment building doesn’t necessarily have to be in a big city like Dallas, Boston, Chicago, Miami, or Los Angeles. The city that you choose for buying an apartment building could be 30 minutes, to an hour, outside of a major metropolitan area because this will give your tenants the convenience of living close enough to the big city, while having the convenience of smaller city life.
After identifying a great location to purchase an apartment building, you should next take the time to learn more about that city or town, specifically, your goal should be to find out what’s happening there on a social or economic level.
One common theme that we’ve seen in many cities across the United States in 2020 is social unrest. Even though protests are part of the freedoms that we enjoy in the USA, having more social unrest in cities like Portland Oregon could be responsible for high vacancy rates.
It’s best to carefully consider what’s happening in a city, including the local leadership, before you purchase a multifamily rental property there because the long-term success of your apartment building, and your ROI could depend on it.
Step 2 – Choose The Type Of Apartment Building That You Want To Buy
Once you identify the right location for purchasing an apartment building, the next step is to determine the type of apartment building that you want to purchase.
Depending upon the city that you choose, there could be a wide variety of apartment buildings located there.
For example, in older cities in the United States like Boston, you may find Victorian mansions that have been divided into smaller units, while in cities like Los Angeles, you may find newer class B and C apartment buildings.
If you plan on paying cash when apartment investing, it’s best to establish a budget for the building that you want to purchase so that you can stick to searching within that specific criteria. The same is true if you plan on financing the purchase of your first apartment building, as long as you know your budget, this is going to save you a lot of time because you won’t waste your time looking at apartments that you cannot afford.
The great thing about the internet is that there is no shortage of ways to find apartment leads out there. There are a wide variety of forums and websites, like Bigger Pockets, for you to choose from which will enable you to find deals and connect with other investors.
Let’s say that you plan on focusing on one specific area, instead of buying apartment buildings in multiple locations nationwide. One of the easiest things that you could do is hire a real estate agent because that agent will save you the time and hassle searching for apartment buildings yourself.
Step 3 – Focus On Due Diligence
After you find an apartment building that you’re excited about purchasing, keep in mind that the work is just beginning because this is where due diligence comes into play.
“Due diligence means taking caution, performing calculations, reviewing documents, procuring insurance, walking the property, etc. — essentially doing your homework for the property BEFORE you make the purchase” – Fox Business
During the process of due diligence, your goal should be to do a deep dive into everything that there is to know about the property. You want to find out exactly how many units the property has, amenities, and if there are any deferred maintenance issues.
Part of your due diligence should also be to review the rent roll, tax returns, leases, and expenses for that property just so that you can confirm if it lives up to the revenue that the former owner claims that it’s earning, or if the property has hidden problems that could affect profitability.
Another important part of due diligence is hiring an inspector to go through each unit of the apartment building, to confirm the shape that the property is currently in and inform you if any deferred maintenance issues will need to be repaired.
Step 4 – It’s Time To Make An Offer A Close The Deal
Last of all, but most important, is the final step in the process of buying an apartment building, making an offer and closing the deal.
Thankfully, you can use the internet to do a comparable analysis of other similar properties in the area so that you know what your offer on the property should be.
After the offer that you made is accepted, the next thing that you should seriously consider is hiring a property management company to professionally manage that apartment building for you.
A property management company will save you the time, money, and hassle of managing an apartment building yourself so that you can focus on enjoying passive income from that property, instead of getting overwhelmed or burdened with all of the day-to-day management responsibilities.
Contact Trier Capital
In this article, I’ve offered you several steps that you can use for sourcing and acquiring an apartment building to add to your investment portfolio.
There are many more steps involved in the process of finding an apartment building, but the good news is that sourcing, acquiring, and managing in an apartment building doesn’t have to be something that you do yourself.
At Trier Capital, we do all the hard work to find and acquire ideal properties, and then oversee asset management after purchase, while our investors sit back, relax, and receive tax-advantaged passive cash flow.
To learn more about the services that my team and I can offer you, contact us today by calling (630) 229-2383 or click here.