Buying an Apartment Building the Easy Way (10-Step Guide)

Table of Contents:

What are the steps to buying an apartment complex?

When it comes to real estate investments many people know that buying an apartment can be a great move towards improving your portfolio. Apartments are usually relatively easy to rent and as such, they have almost certain returns associated with them. So, if one apartment can be a good investment imagine how much better your investment returns would be if you purchased an apartment complex. Apartment complexes and properties can often range in size, so being an apartment complex owner does not necessarily mean starting with a building with dozens of apartments. There are also small apartment complexes that you could invest in and start diversifying your portfolio faster.

When planning out your purchase of a large or small apartment complex you will need to follow certain steps to ensure that your plan is both feasible and worthy of your time and money.

1. Begin by setting your goal and budget

The first step to any investment is knowing how much money you have available to invest and recognizing why you are choosing to invest your money. You will want to make a list of the reasons you would like to own an apartment complex. Whether it is part of your retirement plan or simply an investment that you think will help you build growth there is usually a reason for choosing to make such a big purchase. You will also want to keep in mind what funds you have available for your investment. The amount you have aside could lead to you looking at different property types and sizes. In general, you never want to have more than 50% of your portfolio invested in one property.

2. Choose a market

Choosing where to buy an apartment complex is very different from choosing where to buy your home. While the latter can be chosen purely because of taste and because you know which area you want to live in, the other choice will need to be based on facts. You will need to be realistic about where you can afford to buy an apartment complex based on the prices in the area. Purchasing a complex that is too expensive and won’t bring in that much from rent is something you will want to avoid at all costs. Therefore, do some market research and find which areas are up and coming. You will want to invest in a property that will with time be worth more money than what you paid for it.

3. Find a Lender

Chances are you will not be investing money that you have sitting in a bank account, instead, you will most likely contact different lenders to find the best possible investment loan for your needs. Try to talk to a number of different lenders and if possible, get pre-approval from two different lenders. This will allow you to have options for when you find the perfect property. That Pre-approval letter can also be important when you are putting through an offer for an apartment complex, so it is definitely not something that you will want to ignore getting.

4. Search for properties

If you have completed some proper market research then you may have some ideas about the areas that it would be best to invest in. With those areas in mind start searching for apartment complexes that are up for sale. Professional real estate agents will be able to guide you through the market and help you find properties that are truly great deals. As these are investment properties you will want to be cautious in making a decision on what to buy. Still, be aware that at times the market can move quite fast especially when it comes to great deals, so be prepared to make a rational and quick decision if needed.

5. Making an offer

Much like if you were buying a home, if you are buying an apartment complex as an investment you will need to make offers for properties that you see and like. Remember that since these are investments you will probably not want to offer an amount that you are not comfortable with. Therefore, have your numbers in place before you even start looking at properties to know what you can truly afford to purchase.

6. Negotiations and Inspections

Before you sign any documents and purchase the apartment complex you found you will want to have thorough inspections of the building. The roof, HVAC, plumbing, and electrical systems need to be good or at least in the condition they were advertised to be in. These can all be costly repairs so you don’t want to buy a building only to have these problems arise a couple of weeks later. Even if you have to spend a little more on inspections in the long run having properly checked the complex condition could save you both time and money.

7. Closing Day

Closing day is all about making the final payments and filling out paperwork, but it is also a great day for celebration as you will have finished the lengthy process of buying your apartment complex.

Can you buy an apartment?

Much like you can purchase a home you can also purchase an apartment. In fact, the process of buying your apartment is not any different from the process of buying a home. The only real difference is the type of property that you are looking at. Depending on your area buying an apartment could be a more affordable option than buying a home. Normally, when you purchase an apartment, you are either going to be buying it off of someone who lived there, someone who used it as an investment property or you will be buying it from the development company if the apartment is brand new. In any case, you can purchase an apartment with a similar down payment and mortgage to the one you would need for a house.

Is owning an apartment building profitable?

Owning an apartment building can be very profitable if the building was bought at a good price and the rental prices in the area are relatively high. In general, most of the people who own an apartment building will have pre-calculated their monthly loan payment and the minimum amount that they would be making from rent long before choosing to make the purchase. In some ways, this is why renting is more expensive than owning a property. Because the rent you pay will need to pay off the loan, insurance costs and generate some profit for the building’s owner. Bad investments do exist so before purchasing an apartment building make sure that you know what the market in the area you are purchasing is good and will allow you to make a profit.

Is apartment building a good investment?

An apartment building can be a good investment, but it is also a relatively big investment. In most cases, if this will be your only investment property you may want to diversify instead of putting all your money towards one property. This is because you can never know if the prices in the are you bought will remain stable or not. You also do not want to risk losing all your income if something were to happen to the building. If the apartment building you are purchasing is only one of your investment’s properties, then the risks are fairly diminished.

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What questions should you ask when buying an apartment?

Whenever you buy a property there are a few different questions that you may want to consider. The following are fairly standard questions that you should ask before choosing to purchase an apartment.

1. Which development company or builder was responsible for the construction?
2. What are the ownership costs?
3. Who is the building manager/ operations manager?
4. Are there any new developments nearby and if yes, what are they?
5. What local amenities are nearby? Any information about the neighborhood and school district?
6. Is there any public transport close by?
7. What are the vacancy rates?
8. Is the building available for short-lets or Airbnb?

How do apartment owners make money?

Apartment owners make money through the rent that is paid to them by tenants. Normally, the rent price charged by the owner will cover any ownership costs for the apartment, including any mortgage payments and property tax payments. Not only that, but the price for the rental will usually be higher than all of those costs so that a part of the rent can go to the property owners as profit.

How much does it cost to build apartments?

The price of building an apartment complex will vary based on your location and the size of the building. However, on average in 2020 building apartments in the United States cost around $22 million to build. Variations to that price were influenced by the number of apartment units, the construction costs, the location, and the square feet per apartment.

What are the disadvantages of buying an apartment?

While there are advantages to owning an apartment there are also a few reasons why you may want to consider purchasing a different type of property instead of an apartment.

The disadvantages of buying an apartment can be:

• Depending on the situation you may find that they don’t make for as good of an investment as you had hoped for.
• If there are no local amenities and parks nearby many people may choose to live elsewhere as apartments can be cramped
• Families and pet owners may have a hard time living in a smaller apartment especially if the apartment does not have a lot of space
• Prices can fluctuate based on the market
• Apartments are less private and you will need to be much more aware when making noise

Why apartment is a good business?

The main reason so many people are turning to real estate is that in general real estate income is fairly stable. Even in times of an economic crisis or a pandemic, the rent prices may decrease but in good investments, they will never fully disappear. For this reason, they are considered good investments.

How profitable is an apartment complex?

The total revenue that you make off an apartment complex will vary depending on the number of flats you have up for rent and the rental prices in your area. In general, it is suggested that apartment complex owners make on average around $100 to $150 in profit per unit per month.

Why is it good to invest in apartments?

Apartments can be really good investments if they are purchased in growing markets. The two main reasons that apartments can act as good investments are the following.

1. Apartment value will appreciate over time, which means you can either sell for a higher price or remortgage the property to buy more investment properties

2. Rental income can be fairly stable

Do apartments increase in value?

If purchased at a good price and in a growing market there is no reason for the apartment that you purchased not to increase in value. This is why market research is so important when you are choosing to purchase an apartment or house.

Summary:

To buy an apartment complex you will need to invest a large part of your savings and income, but in the long run, it could yield high returns. Apartments can act as smaller-scale investments if you want to create a diverse portfolio instead of purchasing one entire building.