Winston Rowe & Associates has prepared this article to detail the benefits of investing in apartment buildings versus single family homes.
Many investors would rather invest in single family homes than apartment buildings. However, the problem is that it is somewhat difficult to get positive cash flow houses. One apartment building may provide as much cash flow as twenty little houses. And once you have management in place it may be a lot less work.
When considering apartment buildings, you must remember to buy properties that will have positive cash flow from the start, based on the current income and all of your projected expenses including management. You are an investor, not a manager, and a good income property should pay for management and still produce positive cash flow. It is a good idea to investigate and verify details before making an offer; this will ensure for a honest investment.
Start by verifying income. There should be rental agreements signed by tenants, and rental histories showing if there are any problem tenants or late payments. Look for rental deposit documents also, to see amounts and where the deposits are kept. Also ask to see service contracts and agreements. Do they transfer, or are you free to seek better deals? These can include property management agreements, landscaping, snow plowing, pool cleaning service, and cooling system maintenance agreements.
Get the last 24 months income and expense statements, 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, like accrued vacation time that you’ll have to pay.
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.
Take notes, and list problems, and estimated costs to correct them. You can use these notes during subsequent negotiations. The problems investors run into when buying income properties are usually not unforeseeable. They can be avoided or resolved if you just do your due diligence. Use a checklist so you won’t forget anything.