One of the best methods to keep your apartment building investment profitable and to increase its long term value is to be constantly vigilant about keeping your tenants satisfied. Satisfied tenants tend to stay at the apartment building longer and thus they reduce turnover and your costs. Many individual owners of apartment buildings make the mistake of lowering the rent of their apartment buildings because they erroneously believe that lower rents will keep their apartment buildings full and turnover lower.

In reality, however, I have found that most people chose to stay at an apartment building because they are content where they are. The price of the rent being paid by the tenant is only one of many factors that will contribute to his or her decision to stay and renew their lease. I have found that apartment building owners can maintain a high occupancy rate while charging market rents if they take a few steps to make sure that tenants are happy where they live.

I believe that the quality of management that the apartment building owner has in place plays a large part in the overall experience of most apartment building dwellers. Every multifamily building is going to have problems. There is no way to avoid mechanical breakdowns occasionally with units such as air conditioners, dishwashers, heating units, toilets, plumbing and lighting. What is important is that the management has a clear and steadfast plan for responding to these issues. The plan for addressing mechanical problems and tenant complaints has to be written in the tenant manual and distributed to all tenants. It is even more important that the management rigorously follow these plans to the letter. People in general like to see that the management has professionalism to closely follow the written procedures inside of the tenant manual. For example, if the tenant manual says that all mechanical issues having to do with the break down of an air conditioner are to be resolved within 24 hours during the Summer months then you better be sure that the management has the ability and resources available to get the job done in that period of time. One bad experience with the maintenance work done by the building management can lead the tenant to begin looking for another place to live.

People will stay longer at their apartment if they feel connected to a larger community. There are countless ways, with spending little money, that owners and managers can foster a strong sense of community within their complex. One successful method is to sponsor a quarterly event or party at the club house. The managers can buy a few pizzas to feed the people and decorate the party to correspond with a holiday. These parties are a great way for tenants to meet and mingle with other tenants. People will stay longer at their apartment if they are living close to friends.

The above examples are just a few ideas to get you started and thinking about tenant satisfaction and reducing turnover. Just remember that the rent is not the only factor that will play into a tenants decision to stay living at your apartment building.

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Tags: apartment building, apartment building course, apartment building vacancies, buy apartment building

Realtor Listed Apartment Buildings

A listed apartment building is simply any multifamily property whose owner has decided to sign a listing agreement with a licensed real estate agent. Most listings for apartment buildings will be held by a commercial realtor who has experience multifamily with properties. This can work to the buyer’s advantage because the listing agent will be familiar with the analysis that goes into buying a multifamily property. The buyer should always be aware, however, that the listing agent only has a fiduciary responsibility to the seller with whom he or she has a signed listing agreement. This means that all facts and figures on the financial should be verified as best as possible. Don’t take the seller’s real estate agent’s word for anything. Check and double check the facts first before you make any decision to buy.

It is also important to remember that right now the market for multifamily properties is hot. With a listed apartment building your offer and interests will be competing with more buyers. This can potentially increase the price beyond profitability. Just because there are 15 other buyers willing to pay a certain price for the building does not mean that the property is worth that much. Apartment building investors need to have a clear method for analyzing a property’s profitability. If the building doesn’t meet your criteria or your goals the most profitable thing to do is to walk away.

Unlisted Apartment Buildings

Unlisted apartment buildings are any multifamily building that is for sale but not listed on the multiple listing service or with any realtor. Unlisted multifamily buildings offer both potential risks and rewards. The risks with an unlisted building include not being able to have access to all of the necessary records and information on the property. You many not have very accurate financial information for your property analysis. This will require you to do more due diligence of the property. You may also encounter owners of these buildings who have unrealistic expectations of the price they should receive when selling the property. This can be because the owner hasn’t raised rents to the market level while he is comparing his property’s sales price for the price that similar buildings. What these sellers fail to realize is that apartment building values are determined by the net cash flow on the building which is directly influenced by the gross rents. Therefore, a building with below market rents will not be valued as highly as the building that does receive market rents.

Photo Credit: Joe Gatling

Tags: apartment building, apartment building listing, apartments, buy apartment building, Commercial Real Estate, where to buy apartment buildings

With the Dow Jones Industrial Average having seen a steep decline along with most other major US and international stock indices, many American investors now are in despair about where they should position their investment capital. Meanwhile, the savings rate for American consumers has never been lower. As the credit markets continue to tighten and people have less access to spending cash this could further hamper an economic recovery.

The US government seems intent on doing everything possible to save the banks that are too big fail but they are also funding the high flying lifestyles and big bonuses of the Wall Street executives at the same time. For example, according to a Bloomberg report “Morgan Stanley has accrued $10.7 billion of employee- compensation expense this year, almost twice as much as its pretax earnings. The vast majority of this remuneration hasn’t been paid yet. Now it probably will be, assuming the firm survives through next month.” The outrage over tax payers funding the bonuses of reckless Wall Street traders with US taxpayer dollars should, in my opinion, be much more vocal.

It is one thing to raise a voice in a blog or to make a change with your vote in the presidential elections but I believe a much more effective means of protesting reckless corporate behavior is not to invest in the companies with your own money. An alternative to buying stocks from Wall Street is to invest directly in Main Street. There are numerous ways to invest directly in Main Street. One investment idea that is gaining in popularity for many is the purchase of an apartment building. It does make a lot of sense to have your money invested in a hard asset during times of inflation and economic uncertainty.

Here are some popular Main Street real estate investments along with their potential rewards and risks.

Buy a residential home and rent it out:

Rewards:

Prices of residential homes have declined dramatically over the last 12 months. You should be able to get a good deal. There are many foreclosures and bank auctions to chose from.

Risks:

Prices could continue to fall. Tax rates for residential homes in many areas are very high. Continued residential foreclosures could cause prices to remain weak for an extended period of time.

Buy land:

Rewards:

Land prices in many areas have remained somewhat constant. If you purchase land in a rapidly growing metro area you could see great appreciation.

Risks:

Raw land does not produce any income. Land is notoriously illiquid. This means that you may have to wait a long time to sell it when you need money. Prices of land increase and decrease rapidly. There is a lot of volatility in land prices.

Buy a shopping center:

Rewards:

Top national chains can be a source of predictable and stable income.

Risks:

It can take a long time to replace a commercial retail tenant. When you have a vacancy you still have to pay your taxes and insurance. More and more sales are taking place online. The future for commercial real estate in the retail sector looks very weak.

Buy an apartment building:

Rewards:

Apartment building investments can show a steady rate of return with stable base of renters paying monthly rent.

Risks:

If the economy continues to weaken many jobs will be lost. There will be an increased number of people who are unable to pay their rent.

Photo Credit: ckubber

Tags: apartment building, Economy, housing, main street, real estate investing, rental-property

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

There are many thousands of savvy investors across the United States who would love to begin investing in apartment buildings but they just don’t have a plan for success. In other words, they don’t have a clear understanding of the necessary skills, knowledge, and mechanics of commercial real estate investing. Unfortunately, there are very few resources available to the first time apartment building buyer that offer clear, concise and effective information that can be followed like a business plan. The market is flooded with gurus and secret formulas but most of these gurus and formulas are ineffective and actually will have a negative impact on the efforts of the first time apartment building investors for reasons that will be explained in the following article.

Many real estate gurus that teach apartment building investment seminars are very successful real estate investors, however, their major flaw as educators lays in the fact that they teach one “system” that has worked for them personally in one or two markets during one small period of time.

Heraclitus, the Greek philosopher, is famous for saying “you can’t step into the same river twice”. I would say that you can’t invest in the same real estate market twice. Recent headlines make it apparent that the real estate market is in constant flux. What the gurus teach in their courses, to return to the river metaphor, is the way that they personally crossed the river and reached their own personal success at one particular time. Unfortunately, when students try to follow the gurus system they find that the market has changed and the system no longer works. This causes frustration and the student concludes that is impossible to succeed in commercial real estate investments and the student eventually quits or goes on to the next guru, hoping that he or she has the answers and the formula that work.

For the first time apartment building investor these secret strategies and proven formulas for apartment building investment success can seem irresistible because they promise that investing in commercial real estate is really an armchair activity that requires very little work and pays back big profits. However, in reality, nothing could be further from the truth. Commercial real estate investing is more difficult and complicated then residential real estate and the beginning investor should first spend as much time as possible learning the subject and studying the market.

Here are some real world tips that I would give to the first time apartment building buyer:

1. Devour as much commercial real estate investment research, articles, history, methodology and opinions as possible.
2. Invest in yourself! Find a legitimate commercial real estate course online or at your local community college.
3. Network. Build a mastermind group of commercial real estate professionals such as commercial real estate brokers, commercial real estate loan professionals, commercial real estate attorneys, commercial real estate appraisers.
4. Join an apartment building investment club.

Tags: aparment building investments, apartment building, apartments, buy apartment buildings, Commercial Real Estate, multi-family, real estate investing

A lot of the investors that I work with have some experience investing in single family homes but they want to know more about some of the advantages and disadvantages of investing in apartment buildings. The following lists are not meant to be exhaustive lists detailing every single advantage and disadvantage of investing apartment building and single family homes. The lists are just meant to reflect some of my own observations on each type of investment property. Also, these lists assume that the investor is buying the apartment building or single family home investment for the purposes of holding over an extended period of time. The lists don’t consider other investment techniques such as flipping.

Advantages of Apartment Building Investments

• Lower cost per unit than single family homes.
• Greater cash-on-cash return. Traditionally, apartment buildings offer a greater return than single family homes.
• Foreclosures! All of the families who have been displaced because of foreclosure are going to have to live somewhere! And most likely they will live in apartments.
• You start profiting instantly. You benefit from positive cash flows from day one. And you can live off that income, so you don’ have to go to a job everyday.
• You can afford a property manager. You can actually cut down your property management costs and headaches by hiring a company that specializes in apartment building management. Never talk to a tenant again
• It is easier to get seller financing. Apartment building owners are generally more financially astute and are more willing to help you finance the property. It is even possible to get 100% financing.
• Apartment buildings can appreciate faster than houses. Strong demand in metro areas with limited apartment vacancies can cause prices to soar.
• Pay HALF the taxes you now pay. Standard tax rates of 30-50% don’t apply. You will be able to pay the capital gains rate of 15% by buying and holding.

Advantages of Single Family Home Investments

• Lower start up costs. The down payment on an investment house can be extremely low. Some investors are able to obtain cash back at closing.
• Financing for single family homes is readily available.
• The acquisition costs are less then an apartment building. Generally, you do not have to perform an environmental survey or pay expensive out of pocket fees prior to closing.
• If your rent is priced right, it can be very easy to keep a single family home rented and to keep vacancy rates low.
• Many single family home investment properties will attract longer term tenants, such as families with kids.
• There is the potential to buy single family investment homes from desperate sellers thereby acquiring the investment at below market value.

Disadvantages of Apartment Building Investments

• High start up costs.
• Larger tenant turnover.
• High maintenance and management costs.
• Generally you will have to put down a 20% down payment.
• Your great FICO score won’t help you very much when qualifying for a loan.
• You need to educate yourself to determine how to identify a profitable opportunity.
• There could be hidden maintenance costs you did not perceive or anticipate that could adversely effect your investment returns.
• High out of pocket fees and expenses are required when qualifying you apartment investment deal with a commercial lender.

Disadvantages of Single Family Home Investments

• The cost per unit is usually higher.
• If you lose your tenant then your cash flow goes to zero.
• Prices in the residential market can fluctuate wildly.
• You may be required to belong to a Home Owners Association.
• Because of the higher unit cost, cash flow is lower.
• Maintenance costs can be excessivEach unit has its own roof.
• The taxes and insurance, per unit, can be much higher.
• The replacement value is higher.

Tags: apartment building, Commercial Real Estate, financing, landlord, mortgage, real estate, real estate investing, renter, SFR, single family home, tenant

The apartment building investor should always be aware of the amount of money that he or she has invested in an apartment building and more importantly the “time value” of that money. This concept of money’s value over a period of time becomes extremely important when comparing and contrasting different apartment building finance strategies. For example, the investor may want to evaluate an offer to buy his apartment building by another investor who requires that he offer owner financing. When offering the sale of an apartment building with an owner held note, the seller has to figure out what the value of the mortgage payments, over a specified period of time would be equal to in today’s dollar. The investor/owner must make these calculations so that he or she is able to compare the purchase offer to other offers which differ in terms. To figure out how the time value of money will effect investment returns the apartment building investor must determine what the “present value” and the “future value” of the money invested is and will be.

For example, an investor considering the purchase of an apartment building with an asking price of $1,000,000.00. The investor believes that the property should appreciate by about 5% over the next five years and he wants to figure out what the value of the “future value” of the property will be after five years based on this assumption. Even for the beginning apartment building investor it is important to learn how to make some important mathematical calculations when determining the value of different potential apartment acquisitions.

Scenario: The investor is considering the purchase of an apartment building. The owner is asking $1,000,000.00. The investor expects that the apartment building investment will increase in value by 10% annually. Or, each year the value the apartment building will increase at the anticipated 10% on the principal and on any interest previously earned.

To figure out what the future value of the apartment building property will be, the investor must know the following figures:

Present value =                    $1,000,000.00
Future value (unknown) =           unknown
Return rate=                       10%
Time length=                       3 years

We don’t know the future amount, but we can easily find it.

Let today be time zero, when the apartment building is worth $1,000,000.00

Let’s put this process on a time line to see how the value of the land increases over three years:

0                    1
1,000,000  1,000,000(1+.10) 

2                                     3
1,000,000(1+.10)(1+.10)  1,000,000(1+.10)(1+.10)(1+.10)

Thus, the value of the land at the end of year three can be found by:
1,000,000(1+.10)(1+.10)(1+.10) = $1,191,016.00

or, equivalently,

1,000,000(1+.10)³ = $1,191,016.00

This leads us to the formula for the Future Value of a lump sum:
FV = PV(1+i)ⁿ

Here, PV = present value or amount, i=interest rate, n = length of time.

Tags: apartment building, apartment building investment analysis, Commercial Real Estate, commercial real estate valuation, real estate, real estate analysis, real estate investing