How To Buy Apartment Complex
Buying an apartment complex might seem like a daunting task and an expensive investment, but owning a rental complex can also be very lucrative. This beginner’s guide to buying an apartment complex will provide tips and tricks to ensure you make smart decisions.
Learn About Types of Apartment Complexes
The first step in buying an apartment complex is to learn about the different types of apartment buildings so that you can decide which is right for you. You’ll need to consider your goals and what you want to achieve to ensure the apartment building you buy can meet them.
Once you’ve settled on the building type, you’ll need to pick a market. Choosing a market is one of the most critical factors for success with your investment. A negatively trending market can be disastrous, whereas getting into the right market at the right time can make the apartment building one of your best investments ever.
Set Your Budget
After deciding on the type of apartment building you want to buy, it’s time to set your budget. Remember, many apartment buildings will require a down payment of $100,000 or more. Make sure you have that type of cash readily available. When considering your budget, try to forecast your cash flow. There are rental property calculators available online that can help you determine your monthly and annual income.
Get Pre-Approved
Once you have a budget, a target market, and a cash flow forecast in mind, you will want to start getting pre-approved for financing. Securing financing is one of the most important aspects of buying an apartment complex, so be sure to take it seriously, and prepare all the paperwork your lender will ask for, including detailed financials.
Look For Properties and Make Offers
Once you know that you have financing options available, you can start to find buildings that would work for you. You should start by looking online – find a few buildings you would be interested in and start making offers. Even if your offers come in below the listed price, it is best to test the market and find a deal.
Select a Property Management Company
If the apartment complex is large enough, you likely won’t be managing the property yourself. You will be hiring a property management company to assist with your investment. This is equally important to invest in the right market. The management company will make or break your investment.
Finalize the Deal and Financing
Once you have found the perfect building, return to those lenders with your actual deal and finalize the financing. With multiple pre-approvals, you will be able to compare rates and other aspects of the financing more accurately. Your lender will likely require an appraisal before finishing.
Stabilize Your Investment
After signing the paperwork and purchasing the apartment complex, you’ll need to be ready to spend a few months or years stabilizing your investment and getting all the finances in order. Once you start to get tenants on auto-pilot, you might even consider expanding with a new apartment building.
Buying an Apartment Building FAQs
Is Buying an Apartment Complex a Good Investment?
Buying an apartment complex can be a great investment if you do your homework and purchase in the right location and for the right price. You’ll also want to make sure your property is well-managed and that your rentals are appropriately marketed, ensuring vacancy rates are low.
The first thing to consider is whether buying a specific apartment complex is a good investment and if you have time to manage the property. Owning a few small rental properties are easier to manage, and tenants are easier to work with on a 1-to-1 basis. With an apartment complex, there are more potential vacancies and large scale problems you might face.
How Much Does an Apartment Building Cost?
Pricing ranges for apartment buildings are based on numerous factors. First is the number of apartments in the building. If you consider duplex, triplex, or fourplex apartment buildings, then the price is relatively low compared to high rises, which might possess hundreds of individual units.
How Much Money Can I Make From an Apartment Building?
Real estate, and an apartment complex, in particular, can make money in a variety of ways. The most obvious is using the property for rental income. You can also make money off the property’s appreciation – apartment complexes continue to be attractive investments. Their value tends to increase tremendously over time.
What Types of Loans Are Available for Apartment Buildings?
For buildings with 4 or fewer units, residential loans are available to the buyers. If the apartment complex has more than 4 units, there are three commercial options: Government-backed loans, Bank Balance Sheet loans, and Short-term financing options.
How do I Properly Value an Apartment Complex?
The most common way to value an apartment complex is through the income approach. This approach divides the net operating income (or NOI) by the cap rate.
Can I Buy an Apartment Complex With Zero Money Down?
Occasionally, sellers will offer seller financing that covers either the full amount of the purchase or just the down payment. You may ask your seller to see if he or she is willing to make that offer, but do not expect this to be the case in your situation.
How Much Time Does it Take to Manage an Apartment Complex?
An apartment complex with multiple individual units is too large for one person to manage by himself or herself. You will need to hire a property management company to take over the day-to-day operations. You can work with the property management company so that you are involved with certain decisions and any significant issues that arise.