Buying an Apartment Building
Buying an apartment building can be a lucrative investment. However, it can also be a complex undertaking that is not for the faint of heart and requires a professional team of advisors to ensure that investors are making a good investment. Advisors can include a team of the following:
• Real Estate Agent – A professional real estate agent or Realtor(R) can help investors find good apartment investments, give details on neighborhood statistics and help represent investors when making an offer.
• Accountant – Accountants can provide detailed insight and advice about investment calculations and tax implications involved in purchasing an apartment complex.
• Commercial Property Inspector – A professional inspector can help inspect the overall condition of the building, including the plumbing and electrical systems, checking for dry rot, etc.
Self-education is also important when delving into commercial real estate and commercial property loans. Investors can self-educate themselves by reading books, joining local investment clubs and taking real estate investment seminars.
Finding the right investment building make take a considerable about of time. Investors can search online, in the newspaper, local website listings, work with real estate agent, real estate attorneys and other investors to locate the right apartment complex that fits their investment needs. The most significant consideration when purchasing an apartment building is the location. Investors should consider looking for close proximities to schools, future developments, areas with low crime statistics, low insurance risks from earthquakes, flooding and natural disasters. Investors should also research the apartments’ property taxes, unit vacancies and building amenities.
Commercial buildings have specific mathematical formulas that help determine if they make money or lose money. Basic formulas include the following:
• Net Operating Income (NOI): Annual Rent – Annual Expense
• Cash Flow = Annual Rent – Annual Expenses – Annual Debt Service
• Cash on Cash Return = Cash Flow/Down Payment
• Total Financial Benefits/Down Payment = Return on Investment (ROI)
Financing is a vital part of securing a real estate investment. Apartment loans are difficult to obtain using traditional financing. Most investors use apartment building loans, which allow funding within a short period. Apartment building loans allow investors to increase the value of their asset portfolios by buying apartment buildings. Hard money lenders offer superb commercial property loans, which are easier than dealing with traditional government loans.