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