Commercial Real Estate

Buy an Apartment Building in 4 Steps

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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.

    St. George commercial real estate
    Replied almost 12 years ago
    I really liked the way you laid it out in nice and easy steps. I have found that a lot of people looking into real estate are looking for someone to provide them with easy to use information.
    Replied almost 12 years ago
    Great pieces of information, but I doubt these steps are enough to base you decision on. thanks anyway,
    Replied almost 12 years ago
    Agree with point number 3. Although, new investor must pay attention on this point more, but I believe that this rule is for every investor. Most experienced tend to follow their instinc. I don’t say it is wrong. However analytical thinking is still the best.
    John Corey
    Replied over 11 years ago
    4 steps at a high level makes sense. The work that goes into each step is a lot bigger than some would imagine. The article provides a start. Clearly the devil is in the detail.
    Replied over 10 years ago
    Aren’t the cost of analyzing the deal (such as doing inspections and appraisals) substantially higher than in residential?
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied about 5 years ago
    Knowledge is power. I started reading Ken McElroy’s The ABC’s of Real Estate investing and it’s been amazing. Tons of knowledge and I can’t wait to buy a small apartment.