| Why buy apartment buildings? Well, you should | | | | like expenses that are too low or income that |
| get more cash flow than with rental houses. | | | | seems too high. Review the rent roll, and |
| Of course, big projects do take more time and | | | | find out if the rents are over or under the |
| research and cash, but then they pay you for | | | | market rates for the area. If there are |
| year after year. | | | | employees, look at the payroll records for |
| | | | any surprises, like accrued vacation time |
| It is easier to start investing in single | | | | that you'll have to pay. |
| family homes than apartment buildings. If you | | | | |
| have done so, however, you have noticed how | | | | Do an interior inspection to learn about the |
| difficult it is getting to get positive cash | | | | place, the tenants, and any problems that you |
| flow from houses. Even if you do squeeze a | | | | will have to fix in the coming months or |
| little out of each, it can take a lot of them | | | | years. Look for pests, water and fire damage, |
| to have a decent income. | | | | as well as obvious "problem tenants." Are |
| | | | there any empty apartments that are listed as |
| Like in a Monopoly game, at some point you | | | | occupied? Use professional inspectors as |
| may want to trade in your little green houses | | | | needed for pest inspections and safety |
| for a big red apartment building. One | | | | inspections. The local Fire Marshall may do a |
| apartment building may provide as much cash | | | | free inspection to verify that the building |
| flow as twenty little houses. And once you | | | | meets current codes. |
| have management in place it may be a lot less | | | | |
| work. | | | | For the exterior inspection, you will want to |
| | | | first walk around and take notes. Watch for |
| How To Buy An Apartment Building | | | | anything that looks unusual or in need of |
| | | | repair. Then you can get professional |
| Rule number one? Buy properties that will | | | | inspections, if necessary. You want to verify |
| have positive cash flow from the start, based | | | | that the electrical and plumbing systems are |
| on the current income and all of your | | | | up to date and meet current codes. You also |
| projected expenses including management. If | | | | want to get an estimate on how many years of |
| the current owner doesn't have management, | | | | use the roofing has left. You'll look at |
| that is his problem. You are an investor, not | | | | driveways, landscaping, and exterior paint |
| a manager, and a good income property should | | | | condition. |
| pay for management and still produce positive | | | | |
| cash flow. | | | | Call local authorities and check for any |
| | | | permit problems or zoning or encroachment |
| Do your due diligence? Here's a simple | | | | problems. If there have been fire code |
| definition of the term: "Investigation and | | | | violations, were they corrected? |
| verification of the details of a particular | | | | |
| investment." You can start this process | | | | Get the help of an accountant to decipher the |
| before you make an offer, but you should also | | | | books. Have a lawyer review your offer and |
| have clauses in the offer that allow you to | | | | any documents. Ask what other things you |
| have inspections done, and reviews of the | | | | should be doing. |
| books and certain documents. | | | | |
| | | | Take notes, and list problems, and estimated |
| Look at the files, to verify income. There | | | | costs to correct them. You can use these |
| should be rental agreements signed by | | | | notes during subsequent negotiations. The |
| tenants, and rental histories showing if | | | | problems investors run into when buying |
| there are any problem tenants or late | | | | income properties are usually not |
| payments. Look for rental deposit documents | | | | unforeseeable. They can be avoided or |
| also, to see amounts and where the deposits | | | | resolved if you just do your due diligence. |
| are kept. | | | | Use a checklist so you won't forget anything. |
| | | | |
| Ask to see service contracts and agreements. | | | | Prices are based on income. When buying |
| Do they transfer, or are you free to seek | | | | apartment buildings, many investors will look |
| better deals? These can include property | | | | at the "cap rate" of a property to determine |
| management agreements, landscaping, snow | | | | if it is a good investment at a given price. |
| plowing, pool cleaning service, and cooling | | | | Not sure how to figure capitalization rates? |
| system maintenance agreements. | | | | Just be sure that there is more income coming |
| | | | in than the total money you'll be paying out |
| Get the last 24 months income and expense | | | | each year. Then make sure that this cash flow |
| statements, and look for anything unusual, | | | | is enough to justify the cash you invest. |