Investing Guide For Apartment Buildings

Real Estate Investing

Winston Rowe & Associates a no upfront fee commercial real estate finance firm understands that picking the right apartment building investing strategy in the beginning will go a long way towards your success in the long run.

Economy of Scale:

An economy of scale is when you increase the efficiency of your business because you reduce expenses by buying in bulk.  In the case of buying apartment buildings, a 6-unit apartment building roof replacement expense would typically cost just a little more than a single family home roof replacement.

While your expenses for that roof replacement are similar, the income from the 6-unit would be much higher.  The economies of scale on your 6-flat apartment house would be much better than your single family investment.

Pick Quality Apartment Buildings:

Buy properties that will have positive cash flow from the start, based on the current income and all of your projected expenses including management.

If the current owner doesn’t have management, that is his problem. You are an investor, not a manager, and a good income property should pay for management and still produce positive cash flow.

Detailed Property Inspection:

Do an interior inspection to learn about the place, the tenants, and any problems that you will have to fix in the coming months or years. Look for pests, water and fire damage, as well as obvious “problem tenants. Are there any empty apartments that are listed as occupied? Use professional inspectors as needed for pest inspections and safety inspections.

For the exterior inspection, you will want to first walk around and take notes. Watch for anything that looks unusual or in need of repair.

Then you can get professional inspections, if necessary. You want to verify that the electrical and plumbing systems are up to date and meet current codes. You also want to get an estimate on how many years of use the roofing has left. You’ll look at driveways, landscaping, and exterior paint condition.

Due Diligence Investigation:

Here’s a simple definition of the term: “Investigation and verification of the details of the material facts for a particular investment.” You can start this process before you make an offer, but you should also have clauses in the offer that allow you to have inspections done, and reviews of the books and certain documents.

Verify The Business Income:

You’re buying a business; make sure it makes economic sense. Get the last 36 months income and expense statements, business tax returns with all schedules, all of the seller’s title paperwork, check the County Register of Deeds for liens,  judgments or back taxes and look for anything unusual, like expenses that are too low or income that seems too high. Review the rent roll, and find out if the rents are over or under the market rates for the area. If there are employees, look at the payroll records for any surprises.