01 Dec Investing in Apartment Buildings: Common Considerations
For real estate investors looking at purchasing an apartment property, commercial real estate brokers will furnish full information on existing and potential loans, income, expenses, etc., to help you make the right choice. In addition to the financial data that you expect, we can also evaluate the physical attributes of the property, giving you suggestions on what to look for and what to avoid.
Here Are A Few Suggestions:
- Look for properties with refrigerators in the units and with space available for a washer and dryer in a common area such as the basement. While large apartment houses use coin-operated laundry units, for two-or three-unit apartments it is better to use less expensive, standard units.
- Avoid properties with common heating, hot water and electric service. If the property does not have separate utility services, plan to separate them immediately after purchase of the property. Let each tenant assume responsibility for utilities used. When a tenant pays for his/her own utilities, they are more careful with waste.
- Be careful with wood buildings. Preferred for investment are brick, stucco, or aluminum (or vinyl) sided structures. These have less frequent and less costly maintenance.
- Avoid properties with common halls or stairs. Requirements for sprinkler systems and smoke detectors are often
stringent for such areas.
- Make sure the property meets zoning requirements. A seller may try to sell an apartment property that has had a
common area converted to a small rental. There may be more units rented than zoning allows. In a very small property, a seller might try to sell a house with a mother-in-law apartment as a duplex. If a variance in the zoning is required for the existing rental conditions, get the variance before the closing of the sale.
- Check insurance costs. Liability insurance is becoming very expensive for dwellings of three or more units. Fire
insurance now on the property may not be adequate to cover the replacement value.
- Only consider a property for purchase that has rental income sufficient to cover all operating costs plus mortgages and taxes. Tax benefits in the ownership of an apartment property are less than they were a few years ago, so the income and expenses should be handled like any other business property. The cash flow should allow the units to support themselves and give the owner a return on invested capital.