One of the key factors to success when investing in apartment buildings is having the ability to keep our tenants happy. Happy tenants will stay at your property longer and this reduces turnover. High and steady turnover rates can have a negative impact on the apartment building investor’s bottom line.

The first and most obvious tool that an apartment building land lord can use is the control he or she has over the price of rent. The rent should me at market. I have found that people usually don’t mind paying a fair price for a product or service that has a high perceived value. There are many things that an apartment building investor can do to make sure that the perceived value of their renting experience exceeds the rent that their tenants are paying. I am not suggesting that you lose money every month by throwing appreciation parties for your tenants but a little bit of creativity can go a long way towards making your tenants truly enjoy living in your apartment building.

The apartment building landlord should constantly be thinking of ways to improve the experience of his or her renters. Here are some creative ways to bring more value to your tenants and keep them around as happy renters for years to come.

1. Sponsor a pot luck dinner at the clubhouse every six months so that tenants can have an opportunity to meet and mingle with their neighbors. It is reasonable to assume that a renter will feel more attached to an apartment building if there is a sense of community and group experience. Pot luck dinners will encourage the renters to meet each other. In addition, at the pot luck dinner, you can sponsor a free raffle contest. The winner might receive a $100.00 gift certificate to a local chain restaurant. This raffle can be advertised along with the dinner and it should increase the number of people who actually attend.
2. Distribute a newsletter to residents on a bi-monthly basis that offers some interesting and informative contents about the apartment building or community. This newsletter can actually be written by the residents themselves. I am sure that there are talented writers and illustrators living in most apartment buildings anywhere in the country that would be happy to help. You may even be able to have the printing and distribution paid for by a local company targeting your renters as potential customers. For example, ask around at the local pizza restaurants. You can offer them free advertising and a prominent placement in your newsletter in exchange for them handling the production cost.
3. Send out birthday cards to your renters. Everyone supplies their date of birth when applying to rent. Use this information to send out nice birthday card expressing your thanks for having them as happy renter.
4. Organize an intramural kickball team. This one may take some work but you can contact other apartment building management companies to see if they are interested in forming their own team. Your newly formed kickball team can meet theirs at a nearby park. The winner of the game could win a prize such as a tshirt. The t-shirt, of course, can advertise your rental property.

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Tags: apartment building investing, apartment building management

All investing involves some kind of risk. Generally speaking wise investors will try to ensure that their risk is outweighed by the potential gains. I say potential gains because there really is no such thing as a sure thing investment. And of course there are numerous pro and cons to each investment class.

What surprises me is how much time and energy individual investors allocate to determining the worthiness of a particular company’s stock and how little attention they give to the appropriateness of stocks in general for their overall portfolio. It seems like investing in common stocks is the de facto method of investing here in the United States without many giving the idea much thought or looking to alternative investment strategies such as commercial real estate. Meanwhile, the large banks and brokerage houses would not have it any other way. They make billions of dollars off their clients accounts as they trade themselves into oblivion.

So, let’s take a layman’s look at stocks as an investment class verse commercial real estate investments. In this case we will look at apartment buildings as a representative of commercial real estate because multifamily buildings are readily available for sale at attractive pricing in most major cities in the United States. Below are some common myths about both stock investing and apartment building investing.

Stock Investing Myth 1: “If you buy “blue chip” stocks at least you know that your money will be relatively safe and the stock price won’t go to zero.”

This is a huge misperception about investing in stocks. Many large companies every year close their doors with no money in the bank and no money on the balance sheets. Think about investors in Enron or Freddie Mac and Fannie May. When you buy a stock in any company you are actually risking every dime you have invested. So you better be sure that risk outweighs the gains.

Apartment Investing Myth 1: “Real estate investing is too many headaches. I don’t want to deal with tenants”

Sure, owning an apartment building will require some work but the rewards can come in a solid stream of monthly cash flow. Good luck getting serious cash flow from common stocks. Corporations always seem to find a way to spend their profits somehow and it usually isn’t by paying huge dividends. When you buy an apartment building, as opposed to stocks you are cutting out thousands of middlemen. When GE sells a light bulb for $1.50 in Iowa, that money has to pass through thousands of hands before you even stand a chance of seeing a return on your stock investment. Granted, GE sells a lot of light bulbs but you see my point.

Stock Investing Myth 2: “My stock portfolio will be there for me in retirement”

Not so fast. With inflation rising fast you will need to have a lot more stocks and cash on hand to retire and maintain your current standard of living. If you see a downturn in the stock market at the wrong time then you may actually have to go back to work. Or you may be a greeter at Walmart. Who knows? On the other hand, apartment buildings can supply a steady stream of cash flow that can actually rise during times of inflation.

Apartment Investing Myth 2: “You need a lot of money for the down payment to buy an apartment building.”

If you are purchasing an apartment building with a traditional bank loan you will need to produce a 20% down payment to purchase property. Also, banks will only lend money on an apartment building that is or will shortly become profitable. However, it is very common for apartment building buyers to acquire property from private owners who are ready to retire or move out of state and use some form of owner financing. Many sellers of apartment buildings are happy to hold the note on the property and avoid the tax implications of a cash sale.

There are many more myths associated with investing that just aren’t true when the facts and history are examined more closely. Many investors, in my opinion, could serve themselves very well by examining some of the myths that they hold about investing and money.

Tags: apartment building investing, commercial real estate investing, commercial real estate investments, commercial real estate returns

The first purchase of an apartment building can seem like an overwhelming endeavor for the buyer. There is a lot of information and terminology that is suddenly thrust upon the first time investor and chances are that the new investor doesn’t have the knowledge base to accurately sift through the information to obtain and utilize the most important facets. For example, the new buyer may be staring blankly at the rent rolls for a twenty unit apartment building for the last two years and not have any idea how to dissect that information. Or the new investor may be looking at the income and operating expenses supplied by seller’s realtor and not be able to determine if the information supplied is accurate or even complete. Therefore it is wise to follow a few easy steps before actually purchasing an apartment building, of any size, as an investment.

1) Get an Education — It is necessary for the first time apartment buyer to get the best education possible before actually making the first purchase to make sure that he or she understands exactly what they are entering into and to be sure that they are prepared for any challenges that may arise. The education of the first time apartment buyer should include both an academic and a real world, experiential, component. The academic education should consist of reading as many books as possible about the subject in order to learn the technical terminology and to learn how to do simple financial analysis that will allow the investor to make intelligent comparisons between different properties. The real world component should consist of talking to and meeting with as many other commercial property owners and investors as possible. This can be accomplished by joining real estate investment clubs and meeting commercial realtors

2) Find a Qualified Commercial Realtor — While finding a commercial realtor is not an absolute necessity for finding a great apartment building investment many commercial realtors may know about sellers who don’t actively list their apartment buildings on the market for sale but are anxious to sell none the less. It may also help the first time buyer to have a realtor that will represent him or her when it comes time to make an actual offer.

3) Start Comparing Apartment Building Properties — One mistake that I see novice apartment building investors make, time and time again, is that they let their emotions rule over clear analytical thinking. Because many apartment buildings for sale are priced beyond their ability to be profitable it is important for the first time investor to carefully compare the investment returns offered by one building to many others that he or she has examined to find the one that is the best fit.

4) Find Apartment Building Financing — There are many different methods to obtain financing for an apartment building investment. Some of them include traditional bank financing, hard money loans, a limited liability partnership and owner financing. Each deal will hinge upon the kind and availability of financing for that particular property.

Tags: apartment, apartment building investing, apartment investing, buy apartment building, Commercial Real Estate, how to buy apartment building, landlord, real estate

Let’s take a look at some of the actual returns for a small apartment building investment over a period of five years. Whenever you are making projections into the future concerning investment returns it is always necessary to make some assumptions. In this case we will keep our assumptions very conservative and well in line with historical averages.

Also, I will be using as an example an eight unit apartment building with a purchase price of $300,000.00. I want to use a smaller property with smaller numbers because I believe that just about anyone, who properly prepares him or her self with the proper education and preparation beforehand can realistically purchase, manage and profit from an apartment building this size. There are many methods for securing the money for a down payment that I discuss in my course but I don’t have the time right now to list and explain them all.

The purchase price for our eight unit apartment building is $300,000.00. We are using a bank loan for 75% of the purchase price and we are making a down payment in the amount of $75,000.00. The Net Operating Income of the building is $27,750.00. Our annual mortgage payment on the property is $19,952.76 based on our 25 year bank loan with a fixed interest rate of 7.5%. After paying our mortgage payment the building’s cash flow is $7,798.00. This cash flow gives us a cash-on-cash return of 10.4%. (the cash flow of $7,798.00 divided by the down payment of $75,000.00.)

Let’s take a look at what happens to your returns after five years. We will assume that the building’s income has grown by 3% a year. We will also assume that the expenses have increased 3%. The fixed rate mortgage payment remains the same for the life of the loan.

The Net Operating Income has increased from $27,750.00 to $32,169.86.

The new Cash Flow for year five is:

The new Net Operating Income of $32,169.86

-

The mortgage payment of $19,952.76

_______________________________________

= $12.244.00 Cash Flow at Year Five

The cash-on-cash return has increased from 10.4% in the first year to 16.3% in the fifth year.

In the mean time the actual value of the building has increased by 3% each year to $347,782.00. And increase of $47,782.00 after five years

In addition, the mortgage balance has amortized. The principle amount of the 25 year fixed rate loan has decreased by $20,106.76. The remaining loan balance is now $204,893.24.00.

Putting aside the income returns seen from the Cash Flow every month for 60 months and just looking at the appreciation and loan amortization you have a total return of $47,782.00 + $20,106.76 or $67,888.76. That is a whopping 90.5% cash-on-cash return for a period of five years.

These kinds of returns for many investors who are stuck in the stock market might seem too good to be true. But, remember that we only used one real assumption and that was a growth rate of 3% which is well within historical average norms.

Tags: apartment building investing, apartment building investments, apartment building investor, apartment investing, apartment investment returns

With the US Dollar falling and rising inflation many individual investors are looking for alternative methods to preserve and grow their capital. Apartment buildings are starting to receive a lot of interest from many investors who have little or no experience in the world of commercial real estate. Investors are now attracted to apartment building investments because of their relative security, positive cash flow and growth potential. These new investors are hungry to learn how to buy an apartment building. However, the first time buyer should do his necessary homework before actually investing his hard earned money in a multifamily property.

The last thing a new investor should do is to buy the first apartment building deal that comes across his table. In fact, in my role as a commercial property finance consultant, as soon as I hear that the investor I am speaking with has never bought or managed a multifamily building previously AND that this is the first deal that he or she has ever looked it, then I know immediately that it is a deal that will never get done. I don’t even have to look at the rent rolls or the income and expense statements. To many readers this may sound cynical or brash but it is simply the truth. And it has nothing to do with the intelligence of the investor it just simply has to do with the fact that banks will not lend money on an apartment building that is not or will not soon become profitable.

Many beginner commercial real estate buyers are under the assumption that they will somehow be able to convince their commercial mortgage broker and the commercial mortgage bank underwriters the property is such a great deal at the purchase price because there is a new mall scheduled to be opened down the street or that the neighborhood is undergoing revitalization or because a big employer is moving into the city. All of this may be true but a bank will not generally lend money on an apartment building unless it is already profitable and the bank will usually want to see at least a 20% down payment. And I don’t blame beginning investors for believing what they do. Many real estate agents and property owners will say just about anything to get a building sold. The job of the real estate agent and the property owner is to get the property sold for the most amount of money that the market will bear.

The first time apartment building buyer needs to be aware of the fact that the real estate agent selling the multifamily building represents the seller’s best interest and not his or hers. For this reason it is imperative for the first time investor to have as much education and knowledge going into the deal as possible. The first skill the buyer must have to separate the junk deals from the deals that will be profitable, cash flowing apartment buildings. He or she should begin by taking all or some of the steps below:

• Get a book education first. Learn about the industry and terminology by reading many commercial real estate investment books Stay away from the books that over promise and under deliver. It if seems to easy to be true then you know that it is.
• Develop your analytical skills. You need to be concentrating on Debt Service Coverage Ratios, CAP rates and Internal Rates of Return. You don’t want to be thinking emotionally about the investment. This does not mean that you should eschew creative financing and acquisition strategies. It just means that these strategies and methods should be firmly based and tested in the real world.

• Network and forge relationships with commercial real estate professionals and investors. Every major metropolitan area has at least one very active real estate investment club.

• Build a “master mind” team of advisers that will help you evaluate your investment decisions. This team could include attorneys, accountants, appraisers, realtors, mortgage brokers, business men and other entrepreneurs.

Tags: apartment building investing, buy apartment building, first time apartment building investor, how to buy an apartment building, how to invest in apartment building, investing in apartment buildings

Buy an Apartment Building Today?

In today’s turbulent financial markets many investors are looking for ways to grow their money that will offer a steady flow of predictable income and limited market risk. More and more people are buying apartment buildings to help diffuse the effects of inflation on their portfolios. Apartment buildings offer many exceptional advantages over traditional investments such as stocks, bonds and mutual funds. This is especially true in a recessionary market environment. In fact there are many attractive attributes of an apartment building investment that many investors who are new to commercial real estate may not even know about. There are some interesting facts about buy multi-family property investing that could radically change your perception about this fascinating and lucrative part of the investment world and inspire you to go out and buy an apartment building of your own.

Warren Buffet once said that “wide diversification is only required when investors do not understand what they are doing.” This quote seems especially true about the average investor in the United States who is listening to the advice of a financial adviser who in reality knows little more about the markets then himself. Usually financial advisers will recommend that a client be well diversified in investments ranging from stocks, bonds, mutual funds or maybe even a real estate investment trust. The adviser is putting his or her client into a group of “diversified” investments that were recommended by the firm’s top adviser and the research department. Unfortunately, however, for the individual investor is the fact that these investments are basically designed to preserve the firm’s capital under management and they don’t take into great regard the individual investor’s need to grow his capital.

The most successful investors and those that see the greatest returns are those that specialize in a particular sector. And the timing has never been better to begin specializing in apartment building investing for the average investor. The stock market is under intense earnings and inflation pressure. Investors need to look at a direct investment in an income producing apartment building to establish a profitable stream of cash flow that could last for decades to come. Many thousands of individual investors have been able to secure their financial futures by specializing in this unique niche and leaving behind the mediocrity of financial advisers and stock pickers.

If there has ever truly been a recession proof business it has to be apartment building investing. Even with the US economy is turmoil and business cutbacks people will always need a place to live. The actual demand for rental units in the US has never been higher then today. A total of 36 million of all households in the US are renter occupied. In total, a full 83% of all households under age 25 in the US are occupied by renters. Furthermore, a full 55% of all households between 25 and 35 are renters. The growing senior segment of society will be living longer and looking for rental properties as well. These are a few impressive statistics that demonstrate the strong current and projected demand for rental housing.

Tags: apartment building, apartment building investing, apartment building investor, apartments, buy apartment, buy apartment building, how to buy apartment buildings, learn apartment investing, learn how to buy an apartment building, learn how to invest in apartment buildings, multi-family investing, multi-family property

It is no secret that inflation has reared its ugly head in the US and around the world. And it is easy to see its effects whenever you go to the gas station to fill up your car or to the grocery store to buy a loaf of bread. You can read the statistics: gas prices are above $4.00 while corn and wheat prices are touching record high in the futures markets. However, for the individual investor it can be difficult to gauge the devastating impact of inflation on his or her investment portfolio.

Most investors have the bulk of their money invested in paper assets such as stocks, bonds and mutual funds. Paper assets as opposed to hard assets like gold or real estate usually fair the worst during inflationary periods. The reason for this is because while goods and services are rising in price there is a simultaneous drop in the value of the US Dollar and the price of securities or common stocks.

Public companies tend to trim operations during inflationary and recessionary economies because they find it difficult to pass on higher production costs to consumers who are spending less. This usually means that stock prices decline along with corporate growth. This is especially dire for the individual investor’s stock portfolio because as the price of stocks decline so does the value of his or her portfolio. This situation is only exacerbated by the fact that while stock prices are dropping there is also a decline in the value of the US Dollar. The overall value of an investment portfolio is eroded by two factors, the falling currency value and the falling stock values.

Many savvy investors, during inflationary periods, chose to invest their capital in hard assets like commercial real estate to counteract and hedge against the forces of inflation. A commercial real estate investment such as the purchase of an apartment building offers distinct advantages over paper assets.

The apartment building investor is directly benefiting from inflation because as prices for goods and services rise, so do rents. The most popular method for the valuation of an apartment building investment involves calculating the building’s Net Operating Income. Rising rents and net operating incomes can increase the overall value of an apartment building investment. In addition to increasing the market value of the apartment building rising rents can also help to defer the increasing operating costs.

The US dollar can be viewed as any other commodity such as wheat or soybeans because its value is primarily driven by supply and demand. Banks and lending institutions have cut back their lending on most residential and some high risk commercial construction projects around the country. Therefore money supply for new apartment building construction projects is very difficult to obtain. Also, there are fewer commercial construction companies willing to risk the development of a new apartment building complex while the costs of raw materials are rising. What this means for the apartment building owner is that there will be fewer vacancies on the rental market and a tightening supply situation in many metropolitan markets. The tightening supply of new apartment units combined with an inflationary economy should continue to cause rent prices to rise.

The demand for rental housing in most metropolitan markets around the country is forecast to increase in the next five years. The new demand for rental housing is being driven by two major factors. The first factor effecting apartment unit demand is the rise of residential real estate foreclosure rates around the country. Many thousands of homeowners have been forced to vacate their homes due to an inability to pay their mortgages and subsequent bank foreclosure. In addition, many first time home buyers are finding it impossible to qualify for a mortgage to purchase a new home because banks have tightened their underwriting guidelines for new home loans. Home buyers with no or poor credit are finding it especially difficult to find loans because there is no demand in the secondary market for packages of sub prime mortgages. All of the above mentioned people are going to need a place to live and most likely they will be looking for an apartment. These new additions to the rental market should help to buoy demand for rental units all over the United States.

Simple economics dictate that as the supply of rental units remains steady and demand is increasing then the price or rents for those should increase as well. In my opinion many real estate analysts are underestimating the potential demand for rental units and therefore I believe that sale prices for apartment building should rise well above most people’s expectations.

Tags: apartment building investing, apartment building investments, apartment buildings, buy an apartment building, buying apartments, inflation, landlord, rent, rent inflation