Investing, in my opinion, should be treated like a business.
It requires a product which produces an income or cash flow larger then the expenditures necessary to sell the product. Therefore, it should produce a profit for the manager or business owner.
Unfortunately, many investors are actually not investors at all in the business sense of the word. They are in fact speculators. Most people who own stocks are in fact speculators and not investors, according to my definition. These stockholders are speculators because their holdings don’t produce an income that exceeds their expenditures. Expenditures for stock holders include the erosive effects of inflation on the true value of securities and the cost of holding the stocks or commissions and management fees. These stockholders are speculating that the price of the stocks in their portfolios will rise over time and they will cash out their winnings. Meanwhile, the stock price could down or the company could go out of business and they could lose all of their invested capital. It has always been interesting to me that most people who buy stocks actually consider themselves investors when they are really speculating.
Analysis. What Analysis?
Many of the people who have an interest in apartment building investments are somewhat fearful of actually buying one because they don’t know how to evaluate them properly. On the other hand there are other investors, who also lack the necessary knowledge to truly evaluate the investment potential of an apartment building but they have no fear at all. This second group jumps right in and begins to make offers on properties just based on the recommendations of a realtor or even a friend who is equally inexperienced. Warren Buffet once said that “risk comes from not knowing what you’re doing.” In my opinion this sums up the true risks inherent with an apartment building investment. For this reason, all new apartment building investors should carefully study how to evaluate whether an apartment building will really be a profitable investment.
How to Learn Apartment Building Investing
The way to get the proper education is simply to read as many books as possible about the subject and learn how to analyze the rent rolls, the income and expense reports and the commercial appraisals when available. The new investor can also contact experts in the industry such as commercial mortgage brokers, commercial realtors and commercial appraisers. This is truly the “edge” that apartment building investors have over stock investors and even residential real estate investors. With apartment building investments you have access to the blue print for the business. It is just your job to properly understand what it is saying. The answers are in the details.