When it comes to investing and real estate, most people think of buying a single-family home or condo. However, another option that’s growing in popularity: apartment buildings. If you have the capital, an apartment building can be an excellent opportunity for value-add real estate investing. Learning about the ins and outs of this type of property is crucial before you invest in one, so read on for a beginner’s guide to investing in an apartment building.
Know the market
Before you even start with the real estate side of things, you should do a few things to become an expert on the local market. First, make sure you’re looking in the correct location. This might seem a given, but you’d be surprised how many people jump the gun and buy in the wrong location. Have a good understanding of the rent and vacancy rates in the location you want to invest in. If you buy in an area with high vacancy rates and low rental rates, you’ll struggle to make back your investment. Next, ensure you understand the regulations and restrictions in the area you want to invest in. Some cities and neighborhoods have stringent zoning rules that limit what you can do with the property. Understanding these restrictions early on can help you avoid potential problems with your investment.
Do due diligence
Once you’ve found a good deal, do your due diligence and make sure everything is legit. You’ll want to check the property’s history and find out if any issues might be a problem in the future. To start, you’ll want to ensure the building is zoned for residential use. You can do this by checking with the city’s planning department. If the building was previously zoned for a different use, you might be able to get it re-zoned, but this process can be complicated and expensive. You’ll also want to check the property’s title to ensure there are no liens or issues. If there are, you’ll need to get them cleared up before you can sell the property. You might want to reconsider the investment if there are severe issues with the title.
What repairs or maintenance is required?
Depending on the building you’re considering, there may or may not be any significant repairs or maintenance that are required. If the building is old, though, you might need to do some repairs. This can include fixing broken appliances, fixing leaky faucets, or replacing damaged flooring. However, ensure you know the extent of the needed maintenance. You don’t want to buy a building that needs a complete overhaul. Not only will this be expensive, but it will also prevent you from re-selling the building. Make sure you know the extent of the maintenance needed before you buy.
How will you manage the tenants?
If you buy an apartment building, you’ll have to deal with managing tenants. Depending on your number of units, this can be a significant responsibility. Before buying, ensure you understand the process of selecting and screening tenants. Be sure you know your state’s laws regarding tenant screening, including which information you need to collect from prospective tenants and what you need to do to verify it. Finally, ensure you have a plan for dealing with problem tenants, such as finding the right apartment security measure by comparing systems on swiftlane or having a robust eviction plan for non-payers. There’s a good chance you’ll have to deal with at least one eviction. If you’re not prepared for this or don’t know how to follow the proper procedure in your state, you could lose money and damage your reputation as a landlord.
Is investing in an apartment building right for you?
Apartment buildings can be an excellent investment, but they’re not suitable for everyone. If you’re starting out, you may want to start investing in single-family homes or smaller apartment buildings. It’s essential to understand the market and the trends in real estate. With that knowledge, you can make better decisions with your investments.