How to Get Started Owning Apartment Buildings

Significant capital is required to begin owning apartment buildings.

To get started owning apartment buildings, you need to have good credit and the ability to put down a significant amount of money as a deposit. Once you find a building, and your loan has been approved, you may choose to manage the building on your own or hire a property management firm.

Instructions

1. Contact a commercial real estate agent about looking at properties. Buildings that contain more than four rental units are considered a commercial property.

2. Estimate how much cash flow you will see after purchasing the apartment building. Determine approximately how much management of the apartment building will cost you and how much is currently earned through rents. Verify the rental amounts by asking to review the accounting books maintained by the property's previous owner.

3. Hire a property inspector to thoroughly look at the interior and exterior of the apartment building. Check for pests, fire hazards, water damage and verification that the structures meet building codes. Receive estimates on how much it will cost to fix any issues and use the estimates as a bargaining chip for price negotiations.

4. Find out about the current tenants. Check rental histories to find out about problem tenants with frequent late payments or incidences of lease violations.

5. Review service contracts held by the apartment building. An apartment building's owner may use property management firms, snow removal companies and lawn service providers. Find out if the contracts can be transferred or cancelled in case you find a better price.

6. Apply for an apartment mortgage through a commercial mortgage lender. Buildings can be financed for up to 80 percent of their appraised value and are eligible for 30 year loans. You must put up to 20 percent as a down payment or use another property as collateral to be eligible for lending. For loan approval, liquid assets must equal a minimum of six months of principal, interest, taxes and insurance on the apartment building.

7. File the appropriate paperwork to receive financing for the apartment building. Documents include a personal financial statement, the property's rent structure, operating income statements, monthly income breakdown, purchase agreement and photos of the building. Pay any applicable loan fees. According to HSH.com, loan fees can be very high and run anywhere from $4,500 to $7,000.

Tips & Warnings

• Apartment building loans differ in several ways from home mortgages. For instance, loans can sometimes be assumed from the previous owner of the apartment building. Also, corporations are permitted to take out apartment building loans, so this may limit your personal liability. You must also have a personal history of managing multi-family properties if you are taking out a loan on an apartment building that includes more than four rental units.

References

• The Real Estate Blog: How To Buy Apartment Buildings
• HSH.com: How to Buy and Finance Apartment Buildings
• Fannie Mae: Becoming a Landlord

Resources

• The Bigger Pockets: The Top 15 Reason to Own an Apartment Building as an Investment Right Now