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

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

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As I stress time and time again to new apartment building investors, before making an offer on any apartment building real estate property be sure that the investment will be a profitable one. Banks and commercial mortgage lenders will only lend money on an apartment building that has a Debt Service Coverage Ratio of at 1.2. Once the investor has done his or her work and found a profitable apartment building to purchase then the next step is to structure a offer.

The Offer Letter

The offer that the investor makes on an apartment building should be in the form of a typed letter detailing the terms and conditions under which the investor is offering to purchase the property. After the buyer has figured out the value of the property then he or should deduct around five percent off of that figure and make that the offer price. The investor should also make the offer contingent upon receiving financing, under specified terms, within 30 to 45 days for an amount of at least 75% of the purchase price. The buyer should also include an expiration date of one week on the offer during which time the seller can review the offer.

How to Make the Offer Stronger

1. Get a letter of interest from a commercial mortgage broker that simply states they are willing to lend 75% of the properties value. This letter of interest should not be confused with a commitment letter. The bank is under no obligation to lend the money if they decide to turn down the deal.
2. Put together a professional sales agreement in simple language that is fair to the buyer and seller. This will ensure that your letter is taken seriously.
3. Include any information that will make your offer appear stronger. If you have a lot of real estate investment experience, include your curriculum vitae. If you are going to pay your down payment with cash on hand then send a copy of your bank statement showing the cash.

Tags: apartment building offer, apartment investing, apartments, buy apartment building, make an offer on apartment building, real estate investing, real estate investor

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”.

Tags: apartment building investment, apartment building investment management, apartment building management, apartment maintenance, apartments, landlord, real estate, real estate investing, tenant

With the recent melt down of the sub prime mortgage market banks are tightening up their lending practices in the commercial sector of the finance industry as well as the residential. What this means for the apartment building investor is that he or she needs to make sure that he is working with a commercial mortgage broker who has experience preparing apartment building loan packages in tough times.

The underwriters at banks are now being especially stringent when following their own guidelines. In the past, when a borrower submitted a loan package to a bank loan program that required the borrower to have a minimum net worth of at least 1 million dollars for the purchase an apartment building for 1 million dollars they may have let the borrower float through with a net worth of only $900,000.000. Those days are over. The apartment building investor now needs to be especially diligent when applying for the loan and preparing the loan package for bank underwriters.

Many loan programs for commercial real estate acquisition and refinance have also disappeared. It is now very difficult to qualify for an 85% loan-to-value mortgage on an apartment building whereas in the past they were more accessible. What this means to the apartment building investor is that he or she needs to be working with a commercial mortgage broker that specializes in apartment buildings or at least a broker that only does commercial real estate loans. The two sides of the lending industry commercial and residential, are so different from another that I have never encountered a mortgage broker that I would consider especially adept in both arenas at the same time.

It is important for the apartment building investor to realize that a commercial mortgage broker will usually only charge one point in fees on an apartment building investment. One serious mistake that many apartment building investors make is that they try to contact the banks directly and submit their own loan packages in an attempt to shave half of a percentage point of the interest on the loan. What these novice investors don’t understand is that all banks who do apartment building investments are actually brokers. This means that they sell their loans to the secondary market.

The investor who tries to place his apartment building loan by himself is actually hurting his chances of finding the best rate and terms on his apartment building loan. Many banks and “direct lenders” only offer one or two loan programs that they are willing to underwrite for multifamily properties. A commercial mortgage broker who specializes in apartment building financing will be able to offer the investor ten or twelve different loan programs to choose from that match his personal financial profile and that of the property as well.

Tags: apartment investing, apartment real estate, apartments, Commercial Real Estate, real estate, real estate investing

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

Determining the economic value of an apartment building’s location can pose challenges for novice apartment building investors as well as seasoned experts. As compared to evaluating the location of a residential single family home investment property, an analysis of an apartment building location can seem overwhelming.

When examining the location of a single family home the necessary data to reach an educated opinion of a properties location for investment purposes can easily be comprised by determining such factors as recent sales prices in the neighborhood, the general appearance and upkeep of the surrounding houses, the school district, the rents in the area and the areas major employers. When assessing the location of an apartment building, especially in a city that is unfamiliar to the investor, additional data and further analysis is necessary to create an educated analysis of the apartment building’s location.

Factors of Analysis

The economic analysis of commercial real estate location is a complicated, in depth and sometimes tedious process whose parameters are far beyond the scope of a short introductory article but some of the basic issues and themes should at least be familiar to first time apartment building investor. The geographic location of an apartment building investment property can have an enormous impact on its long term value appreciation. It is the relationship between physical location (within a state, a city, or county) and the local economy that can impact the location value of an apartment building most prominently.

For example, is the apartment building geographically close to a high technology hub, a hospital, factory, or other major employer for that particular geographic location? This type of analysis will require some extra work and general familiarity with the local economy.

Trends

The apartment building investor should also examine what the population trends have been in that area over the past few years or even decades. For example, has there been an influx of young professionals from the suburbs moving to the city center for employment or a lifestyle change? Or, has there been an exodus in the opposite direction.

Area Vibrancy

Another general point to consider is the overall economic vibrancy of the urban area where the real estate is located. Have major corporations recently opened branch offices in the area? Have developers built infrastructure like strip malls and shopping outlets? Are there plans to build a utility or factory that could be a supply of well paying employment for prospective tenants? A small investor can often make assumptions about economic conditions by watching the activities of large retail commercial construction companies.

These few observations are just a few of the myriad factors that can go into a comprehensive analysis of an apartment building’s location. Obviously, I haven’t introduced any financial models that can be of great help when comparing different apartment buildings in different geographical locations.

Tags: apartment complex, apartments, commercial evaluation, Commercial Real Estate, real estate, real estate investing