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Posts Tagged ‘apartment building investment’

How to Increase the Value of an Apartment Building Investment

July 29th, 2008 by Ted Karsch | 4 Comments | Filed in Commercial Real Estate, Featured Articles, Investor Interviews, Landlord Tenant, Learn Real Estate

One of the great aspects of being an apartment building owner is the ability the owner has to increase value in a variety of different ways. All of these methods for increasing value will not apply to every apartment building, however, I would venture to propose that there is not one apartment building in any state in this country that could not use at least one of these methods to create more value very easily. If you compare this ability to other investments like stocks or bonds you can truly begin to realize why so many fortunes have been built by investing in multi-family properties.

Forced Appreciation — Forced appreciation is any repair made on commercial real estate that “forces” the value of the property to appreciate.

Cosmetic Repairs:

Making cosmetic repairs makes the property more appealing to potential tenants while also keeping current tenants happier. Repairs that can have a dramatic impact on appearance include painting exterior walls, painting interior walls, repairing the landscape around buildings and replacing aged, dirty and worn out appliances.

Raising Rent:

This may seem like an obvious way to increase the value of an apartment building but it is truly surprising how many rental buildings are charging rent that is 10% to 20% below market rates. Many smaller apartment building owners manage the property themselves and thus find it easier to keep rents below market to retain tenants. This theory is flawed in practice because it doesn’t take into consideration that, nowadays especially, many people will move from an apartment for reasons having nothing to do with the rent. For example, many people relocate for better job opportunities in another city.

Replacing Utility Equipment:

If an apartment building owner is paying the electric bill for common area lighting he or she can save a lot of money every month by simply replacing all of the lighting fixtures with energy efficient bulbs.

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Apartment Building Investment “What Ifs”

June 24th, 2008 by Ted Karsch | 9 Comments | Filed in Commercial Real Estate, Landlord Tenant

The decision to buy an apartment building investment for the first time can be a fearful experience for many real estate investors. The task of owning and managing an apartment building can seem overwhelming and the feeling of fear usually is due to the unknown factor of the “what ifs”. The “what ifs” are all the things that could possibly go wrong with ownership of an apartment building. Usually the “what ifs” seem a lot worse in your mind then they actually are in the real world. Remember, an apartment building investment is insured against most of the “what ifs” and proper preventative maintenance and management can prevent most problems before they arise.

Apartment Building Investment “What Ifs”:

  1. What if my tenants don’t pay the rent and refuse to leave?

    What if they stay in my apartment like Michael Keaton did in the movie Pacific heights?

    Thankfully, all states have a legal process for the eviction of tenants. In some states tenants have more rights and the landlord more obligations then others. As part of your management team it is recommended to have qualified legal consul who specializes in real estate law. Just follow the process. Also, remember to be especially diligent.

  2. What if a tenant slips and falls and sues me?

    If you own many apartment building rental units then chances are that you will be sued on occasion. Once again, this is the cost of doing business. Don’t believe any real estate guru that tells you that you can get rich overnight without doing any work. Remember to keep detailed records of all maintenance that you perform on the property. These records could be useful in defending lawsuits.

  3. What if I can’t rent out the units and therefore can’t pay the mortgage?

    Make sure you research the rent rolls of the property you are purchasing very carefully. Look to make sure that tenant turn over is not too high. Are the rents you are asking in line with the rest of the area for comparable buildings? Are you doing enough advertising to ensure that you have a steady number of applicants to fill empty units?

  4. What if there is a fire?

    Insurance will cover accidental fire damage to the building.Again, make sure that you are keeping up with preventative maintenance.

Remember, just a small amount of diligent preventative maintenance along with a good insurance policy will protect against most of the apartment building investment “what ifs”.

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Apartment Building Management Tips

June 2nd, 2008 by Ted Karsch | 6 Comments | Filed in Commercial Real Estate, Landlord Tenant

Funny Apartments by Montrasio International
The success and profitability of an apartment building investment can often be determined by the quality of the management in place.

Usually apartment buildings with more than 20 units are managed by professional property management companies and those buildings with fewer than 20 units are usually managed by the owner and a live in property manager. Regardless of who is managing the apartment building it is important to follow some general principles and tips to make sure that operations run smoothly.

The management of an apartment building should be efficiently run like any other business. The manager should look to improve the client-tenant living experience while minimizing costs and increasing profit opportunities whenever possible.

One important legal issue that should never be ignored are the Fair Housing Rules which prohibit discrimination based on race, gender, age, disability, marital status, and sexual orientation. Everyone involved in property management must follow these rules.

Another important matter to that can generate complaints with the management is the issue of who is responsible for repair and maintenance of the apartment units. The property owner should clearly write out in the lease agreement who is responsible for what repairs. State and federal laws should also be consulted because it is illegal to shut off essential utilities for the failure to pay rent. In other words, if a renter is late on rent it is illegal to shut off the electricity or water.

The apartment building manager should succinctly write out the following information in the lease agreement:

  • The tenant’s responsibility to maintain a clean rental unit and also pay for damage caused by neglect or abuse.
  • The tenant should alert management of any dangerous or defective situations with the property. For example: faulty wiring, water leaks, mold and fire hazards.
  • The manager will provide tenants with the official policy and procedure for dealing with complaints and repair requests. For example, what the hours of operation are for the maintenance and repair staff and how fast tenants should expect a remedy to complaints.
  • Have restrictions on tenant alterations on their apartment with out your permission, such as adding appliances, painting, etc.

In general, maintenance and repairs should be handled as speedily as possible to avoid further complaints from the tenants. Major issues like plumbing leaks and heating/cooling problems should be dealt with in 24 hours. An open line of communication between tenants and management is an essential ingredient to good overall relations. Management should keep the tenants informed of when and how the repairs will be made and the reason for any delays.

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