Investing in real estate is one of the smartest things that you can do because housing is a stable investment. In particular, investing in apartment buildings can be an excellent source of passive income.
However, no matter what you put your money into; you should know there is always risk involved. Before starting, you need to do your research. Here are some tips for apartment complex investing.
Check the Financials
When looking for an apartment complex to purchase, you need to be upfront and ask the current owner about the financials associated with the apartment for the previous years: rent rolls, income statements, and expense statements. Verify the information given to you is factual and question anything that is incomplete or does not make sense. Request a list of all maintenance activity for the property over the course of the current owner’s ownership and anything they learned prior to taking over ownership. Understand the improvements made; the existing warranties and conduct the proper research to answer any of your questions.
It’s crucial to do your proper due diligence. If you do not understand the income and expense statements, ask your real estate agent for guidance. This professional will know what to look for and what to avoid when searching for an investment property.
Do Your Homework
Walk around the apartment building and pay attention to detail. Look for problems such as pipes, walls, cracks, leaks, mold, pipes and wiring in general. You need to know what you are getting yourself into in order to plan your expenses accurately.
You can always clean up a building once you invest in it. Does the front or backyard of the apartment complex look groomed and neat? What about common areas like lobbies, hallways, or laundry facilities? Know that less visually appealing properties can be great potential investment opportunities. However, you should also plan out your own financial goals. This will help you decide where to focus your work and money for your desired outcomes, both when purchasing and making improvements.
Interview the Tenants
With the owner’s permission, you can ask the tenants whether they like living in that neighborhood and apartment complex. Does the tenant get along with his or her neighbors? Are there maintenance issues they are dealing with? Are they happy in the space? Find out what additional amenities they would like. There could be some inexpensive options you could provide that could substantially enhance your tenant’s experience and improve the value of the property. Listen to their responses and study their body language.
Remember, if you end up investing in an apartment complex, those tenants will become yours. If they remain happy, they are more likely to remain in the space.
Research Neighborhood and Real Estate Markets
You need to find out how stable the current real estate market is in the area. When you look at the past and current trends, do you think the market will be stable in the next five years? What is the area’s outlook for multifamily properties specifically? You should understand the growth rate expected in the area because that could mean job opportunities for the tenants, making them more likely to stay. Moreover, you should understand the potential and recent appreciation/depreciation of a neighborhood. Check the local assessor site to see the history of the property valuation and surrounding property valuations. Your realtor can provide additional guidance on area economics as well.
You should also do your own tests to find out whether you would be comfortable running or walking in that neighborhood in the evening. How does being in that neighborhood make you feel? If you are comfortable during the day and night, then your future tenants should be comfortable, too.
Research an area – you should look at a map if you want to see how close the apartment complex is to schools, public transport, and shopping areas. Are there bike lanes and smooth sidewalks that make it easier for people to ride their bikes and walk?
Raising the Value Potential of the Apartment Complex
Is there anything that you can do to increase the property’s value? If you can repaint the apartments or add smart technology then you can easily increase the value of a property. Employing an experienced property manager can help you decide where you should focus your improvement efforts. Think about your future tenants and the type of changes that will appeal to them.
Run the hard numbers. Use the income approach if you want to determine the potential annual capitalization and income rate of your investment. The lower the cap rate, the lower the risk level. The challenge for you as an investor is to find the right risk-adjusted return on your investment. When looking to invest in apartments, prepare yourself. However, you do not have to do it alone. If this is your first purchase, hire an experienced realtor who focuses on investment property to help you. They can help you navigate the waters efficiently, remind you to keep your emotions in check and help you find a property that provides you the cash flow you are looking for.
Ashley is an award-winning writer who discovered her passion for providing creative solutions for building brands online. Since her first high school award in Creative Writing, she continues to deliver awesome content through various niches.
