5 Tips for Serious Apartment Flipping Investors

According to Abodo.com’s National Apartment Report: July 2016, rents jumped 15% from June to July. Summer is, of course, the time of year that many renters choose to move, which helps account for the spike. Beyond the regular cycles, however, the vacancy rate in rental housing is just 7% nationwide. That’s the lowest it has been since 1985. Cities where rents have gone up the most include Milwaukee, WI; Columbus, OH; and San Diego, CA.

At the same time, property values are rising, making now an ideal time to begin rental real estate investing.

If you come from a background of house flipping, you may assume that flipping apartment buildings is basically the same thing, but you would be very wrong. If you’re considering flipping apartments, here are five tips to keep in mind:

1. You must educate yourself

You may know everything there is to know about flipping a single family home, but that won’t necessarily prepare you for successful buy and hold real estate investments. For one thing, apartment buildings are valued differently than single family homes. An apartment complex is usually valued based on its cap rate, which is calculated by dividing the property’s Net Operating Income by the purchase price of the property.

If none of that makes sense to you, take a class or read a book about the ins and outs of apartment flipping. You should also learn all about what tax breaks you’ll have access to as a landlord, how to assess the strength of an investment opportunity, and what kinds of repairs make sense to consider.

2. Find a great realtor

Perhaps you’ve always done fine acting as your own realtor while flipping houses, but that lucky streak is likely to run out when you start looking for apartment complexes. For one thing, many apartment buildings aren’t openly listed the way that single family homes are. It helps immensely to find a realtor with a strong knowledge of apartments, to have access to their reports, and to be able to utilize their insights.

3. Account for vacancies and unforeseen repairs

Part of running an apartment complex is tenants occasionally walking out on their leases, long vacancies, and unexpected repairs. You need to account for these costs (among others) when determining if a buy and hold investment is worthwhile. You should also, of course, have any apartment building thoroughly inspected before committing to anything. The presence of asbestos or lead paint could be enough to ruin a potential investment.

4. Secure financing early

The right buy and hold loans can give you leverage during the purchasing process and help you better leverage your capital. With the right loan, you could switch your focus from ten-unit complexes to fifty-unit complexes. Just make sure that you review the loan terms carefully, ideally with an accountant or a lawyer. Watch out for hidden points and fees, and pay close attention to the loan-to-value ratio. It makes the most sense to work with a private money lender who underwrites their own loans. That will give you flexibility and security.

5. Hire a property manager

Running an apartment complex is a full time job. Running a particularly large complex might be a job for a whole team. Do your research to find property managers who you can trust and who will give you the best value for your investment.