3 Things To Consider When Getting Started in Apartment Investing

Many people dream of investing in apartments, but are afraid of the unknown. Because of this fear most investors end up investing in single-family homes.

While there is nothing wrong with investing in single-family homes, it’s just as easy to start with multi-family apartment units, and there are more advantages to apartment investing.

So the first step is to make the commitment and decision to invest in apartments. Other considerations are price and number of units, location of the building, condition of the building, expenses and monthly rental income, rents in the area and local rental laws.

Price and Number of Units

Start with a budget of how much you want to spend for the building and the number of units you want. For new investors, it is recommended that you start with a smaller building such as 6 units. This way, it is manageable. You or a family member could live in one unit, and then rent the rest out. If that works out, then you can move up to a larger building later such as 12 units.

You should ask the following questions about the building:

· Age

· Sq. footage of units

· Whether pets are allowed

· Amenities and Features

· Value of the property

· Monthly Rents and average rents in the area for similar properties

· Gross Expenses

· Net Income

Other factors to consider are the demographics and crime in the area. Then run the rental income numbers less expenses to determine if you will have a positive cash flow or a negative cash flow.

In some instances, you may have a negative cash flow because of rent control or tenants who have lived in the building a long time and who are paying less rent than new tenants. So you will have to decide if you want to buy the property and wait for the residents who have resided their longest to move out so you can obtain new tenants at market rate rents or whether you are more interested in property value appreciation.

In appreciating real estate markets, many investors (I am not one of them) consider appreciation values more important if they are thinking about resale in a shorter period of time. For long term investment and in depreciating real estate markets, you should consider positive cash flow the determining factor for making your investment decision.

Location

Here are some important factors to consider when choosing a location:

· Invest in a building that is near public transportation and close to major highways or near a college campus and in a good public school district. This way you will have a larger pool of good quality tenants to choose from.

· An urban redevelopment area is good because property values tend to appreciate. Check our city planning commission to determine where new urban redevelopment projects have been approved.

· Find a rehab property in a hot neighborhood.

· Choose a property close to where you live if you plan on managing the property yourself.

Local Laws and Ordinances

Be sure to check with your attorney or rental control board, if applicable, about the local rent control laws in your area. It is important to understand your legal obligations and responsibilities so that your building is in compliance with local laws and you don’t violate any laws.

Investing in apartments is a wise decision to build your long term wealth and financial security. Whether you choose a small or large building depends on your financial needs and budget. It is a great time to buy apartments right now because prices are affordable, and there is a high demand for rental properties as a result of the foreclosure crisis. Many displaced homeowners who have list their home to foreclosure or have been forced to sell their homes, are looking for clean, secure and affordable rental properties in the same neighborhoods so they don’t have to disrupt their lives and have to take their children out of school. Other people just cannot afford to buy a home and would prefer to rent. Right now is a terrific time to make a secure investment in apartments.

Source: Sophisticated Investor