Investor · Philadelphia, PA · Member since 2015 · 172 posts · 58 votes
What if you decide to buy an apartment building that's already profitable, running fine, structurally and cosmetically up to date, and has good management? If you buy that type of apartment, or any other type of real estate for that matter, and it is already in good working order and a class "A" or "B" asset nothing really wrong with it, could I just take that and continue renting it out with the current management company, collect rents, and make good cash flow from the deal? Or does most profit come from fixing up real estate, improving profitability, etc.?
I buy new builds. In the commercial multifamily world price is all about cash flow (and location). For example, where I live the cap rates range from 4-6%. This means if you bought with cash you would get 4-6% return each year
It really depends on what your goals are, how much time you have, how much cash, etc etc. New Builds are more like bonds in that you are buying an income stream. This type of investment works best IMO for those with the ability to come in with a large amount of cash and if you leverage you are basically earning the split between CAP rate and interest rate and your cash flow will be slimmer until you can increase rents over time
So really it just depends. Just keep doing what you are doing - fact find and keep learning and you will find what will work best for your situation.
@Mary Mitchell "New Builds are more like bonds in that you are buying an income stream." That sounds like you're describing a passive investment, which residential real estate is not. Even with new construction, you have to operate the building, which takes work. Passive real estate is NNN Single Tenant Commercial properties.
With new builds, you generally are renting more expensive units, so your tenants have stronger financials. Those tenants are also more demanding. I spend more time per unit for the nicer properties.
@Ben Feder profits can be enhanced by making improvements and forcing equity but you can still make good profit on an asset that doesn't need any work and is already performing. Don't forget that profits from rentals come from different sources, mainly cash flow and equity gain through mortgage paydown and appreciation. The there is also the depreciation tax benefit. It's really no different than buying any other ongoing business that is already well run and profitable vs buying a troubled business and turning it around. There's more risk in the later.
If you can rent it and pay your debt service and recurring costs then yes. Ron LeGrand would advise you to deal with pretty houses with terms instead of cash though(use lease options, options, subject to deals, etc). But yes, you can make money investing in pretty houses