Investing in an apartment building can be financial windfall – except when it isn’t and turns into an experience approximating a descent into Dante’s Inferno. Certainly there are similarities to other types of rental property investments but, as an apartment investor, it never hurts to review the basics. If you have recently purchased an apartment building, here’s hoping you paid attention to some of these factors before you closed the deal.
1. Pay attention to the neighborhood. An apartment building doesn’t exist in a vacuum. Problems in the surrounding area will inevitably bleed over into your investment and might even turn the whole thing into a money pit. Are there gangs operating in the area? If so, they will run your investment, not you. A single neighborhood car tour with your salesperson at the wheel isn’t enough. Take a walk through before becoming an apartment investor. If you don’t dare do that for security reasons, maybe you should set your sights elsewhere.
2. Don’t Overpay. No matter how good the deal is, it’s not the only one you’re ever going to find and definitely isn’t worth entering into a bidding war or overpaying for. These days, on the down side of a slump in many local markets, the idea of bidding against other eager apartment investors might seem ludicrous. Trust us, it used to happen. Keep in mind that money is made on your apartment deal when you buy it, not at the sale. Overpaying is a cardinal sin.
Is it a problem building? The place might look perfectly fine upon multiple walk throughs but you might be surprised when you take the time to research whether it has ever been flagged for substandard code violations by the local Housing Department or Health Services Department. You don’t want to buy into problems like that. If you believe in the basic goodness of humanity, pinch yourself hard and smell the coffee. There are a lot of bad buildings owned by bad people looking to dump their problem squarely in the the lap of an idealistic investor.
Remember that the key to profitable real estate investing is to secure the proper kind of financing (long-term, fixed-rate) and never forget the safety of diversification. Owning multiple buildings in the same city is not diversification – that’s suicide. Hopefully you realize that a properly diversified portfolio is spread among several cities far removed from each other. Rarely does the housing market move in one monolithic lockstep. Put some miles and state borders in between your investment properties for maximum portfolio protection.
The MHP Listings Team
Flickr / Charley Lhasa