Apartment Buying Guide
Buying an apartment building is likely to seem like a daunting task for many. This is especially true for beginner investors. Real estate investors of all experience levels have grown their wealth exponentially by buying apartment buildings, and you can too.
apartment buying guide
The biggest benefit of buying an apartment is its scale. With a single purchase, investors are able to double their portfolio. With so many tenants, they are also able mitigate the risk of vacant units without interrupting their cash flow. While the risk of buying might seem big initially, it is quite the opposite longterm.
The more units the building has, the more expensive it will be. For example, a huge high-rise with 100 plus units will cost tens of millions of dollars or more. Luckily, there is a nice middle ground of apartment buildings that are smaller than a high-rise but larger than a fourplex. These apartments will likely cost between $500,000 and $1 million.
Of course, the actual amount of money you make from investing in an apartment building will depend heavily on the size of the investment you make. In most circumstances, apartment owners can expect to make about 4-10% return on investments.
One of the top tips for any beginner investor looking to buy an apartment building is to partner with an experienced agent. When it comes to apartment buildings, the best properties rarely ever hit the market and are instead sold by agents through private connections.
Considering apartment buildings are an expensive venture, why not save money if you have the opportunity? If a $400,000 single-family home can reward a buyer with a $6,000 refund, just imagine how much you could get back with a large, multi-unit property. Contact us today to start your apartment buying journey.
For most new investors, buying an apartment building might seem like a daunting task that's too difficult or expensive to achieve. I used to think that myself, until I closed on my first 12-unit apartment building. I realized that the whole processisn't much different than the process I'd already learned to buy a smaller rental property. The biggest benefit is the scale. With one purchase I was able to double my portfolio, while buying an asset with many tenants to mitigate the riskof a few vacant units hurting my cash flow.
While the barrier to entry may seem high, since some apartment complexes require down payments of $100,000 or more, not all apartments are that expensive. There are also some creative financing options that let you purchase an apartmentwith a down payment that's far less than what you might've thought was possible. In some cases you can actually buy with no money down.
The average cost of buying an apartment building depends on what you define as an apartment building. If you consider buying a duplex, triplex, or fourplex an apartment building, then the average cost goes down drastically. In my market I can buy a fourplex that cash flows for around $100,000. And if I was willing to live in the property, I could use an FHA loan and house hack by living in one of the units for only 3.5% down.
Apartment complexes can be tens of millions of dollars or more if you're buying huge high rises with hundreds of units. However, there is a middle ground of smaller apartment complexes that are bigger than a fourplex but still affordable enough for most investors.
In short: Apartment buildings in general are good investments, but not every individual apartment building is a good investment. Would-be investors must exercise caution when evaluating a property and take into account many factors, including the condition of the property, price relative to other similar properties, local real estate trends, and rental vs. ownership demand in the area. The easiest way to do this is with a rental property calculator that lets you forecast the returns you can expect from purchasing a particular apartment complex.
However, people always need a place to live, and renting an apartment is often the most affordable housing option. There is currently a shortage of affordable housing in most American cities, which bodes well for owners of apartment complexes that offeraffordable to mid-level housing. On the other hand, there is currently a large number of new luxury apartments being built, and those will be the first to reduce rent or go vacant if the economy dips.
The picture above isn't pretty, but it's probably the best investment my partner and I have made to date. This is a 12-unit apartment complex that my partner and I bought a few years ago in rough shape, and we brought it back to life.
We bought the entire complex for around $270,000, or $22,500 per door. The moment we closed, we had our crew come in and put on new roofs, fix the sewers, redo the tuckpointing, and start renovating the apartments as they became vacant (three units werevacant, and two tenants weren't paying). Over the next year, we completed the renovations and raised the average rent from $550 to $650. By our calculations, we increased the value of this apartment complex by over 100%. We currently valuethis property at $600,000, and it cost only about $130,000 in renovations to get there.
Get real estate software: You can sign up for real estate investment software that focuses on helping investors buy off-market properties. Apps like DealMachine are useful tools for investors looking to find apartment buildings to flip, BRRRR, or wholesale.
There are quite a few types of apartment buildings: high-rises, mid-rises, garden-style, and walk-ups, among others. Make sure to evaluate the current real estate trends in your area before deciding which type to buy, since popularity varies by region. Your real estate agent can make recommendations based on what they see in their day-to-day work.
You also need to decide if you want a new apartment complex or one that will require some fixing up. You can generally find fixer-uppers for a better bargain, but they require a greater time investment and a keen eye for undervalued properties.
The ratio of renters to owners in a region can be a good indicator of your investment's success probabilities. Cities with more renters than owners have more demand for apartments, so be sure to look into these statistics before making a purchase.
Upkeep expenses can take a big bite out of your bottom line. Prior to buying a complex, look up the local going rate for some of the most common renovations, like repainting the exterior of the building and the interior of the apartments for when tenantsmove out.
Working with a real estate agent is the best way to find apartment buildings for sale. They can use their professional network and the MLS to monitor new listings and alert you of suitable properties for sale. Besides a real estate agent, you can find listings in the local paper and online.
To determine an apartment's value using the income approach, start by finding the NOI. Multiply the monthly rent per unit by the number of units in the building, and subtract all operating expenses. Next, divide the NOI by the cap rate that's common in the properties location. You can find the cap rate by speaking with real estate agents in your area.
To finance an apartment building, you need to find a lender that offers government-backed loans, bank balance sheet loans, or short-term financing options. The rates and maximum loan amounts vary depending on the type of loan. Compared to residentialproperty lenders, commercial real estate lenders are more likely to base lending decisions on an applicant's real estate investment experience.
Buying a condo can be a cost-effective way to get into homeownership without the need for as much maintenance as a single-family home. They are also great options for first-time homebuyers or investors, due to their lower price point and potential for rental income. No matter what your goal is with buying a condo, though, it will likely cost a bit more in 2023 as home prices remain high. In certain areas, buying a condo may feel just as competitive as buying a single-family home. Compare multiple properties and be flexible about your must-haves and nice-to-haves. Consult with a real estate professional who specializes in condos to guide you in your home search and protect your interests during the process.
Looking for more information about first-time home buying in Chicago? Learn more about where first-time home buyers should start a condo search in Chicago or check out all the latest news related to first-time home buying and financing.
Over the last century, countless real estate investors have grown their wealth exponentially by buying apartment buildings. But, before they became successful investors, they all started as beginners, eager to purchase their first multifamily property.