How to Buy a Multi-Unit Apartment

Purchasing multi-unit apartment buildings requires significant research by the buyer.

Approximately 33 percent of the American population lived in rental units in 2010, according to surveys done by the National Multi Housing Council, with the highest number of renters residing in the cities of New York, Boston, San Francisco and Los Angeles. Buying a multi-unit apartment building, typically defined as more than two to five units, requires research to determine the amount of income from the units and the cost of operating the rental property.

Things You'll Need

• List of comparable apartment sales
• Personal financial information

Instructions

1. Brainstorm the parameters for your real estate rental investment. Determine the targeted number of units, general location of the multi-unit rental property, approximate amount you're willing to invest in the property and the ideal general condition of the property. Investigate special financing and tax incentives for buildings in redevelopment areas or structures qualifying as historic structures under federal or state restoration regulations for low interest loans or special grants.

2. Conduct a general multi-unit apartment search of your target area. Use online commercial real estate websites, including local and regional apartment-owner organizations, and classified ads for buildings on the market and rental amounts. Drive the general geographic area to look for abandoned apartment buildings, if your general plan includes restoration or rehabilitation of older apartment structures.

3. Consult an experienced real estate agent with multi-unit apartment experience and commercial licenses to provide access to an expanded base of real estate offerings. Scan the range of marketed properties and narrow your choices to one apartment listing. Work with your agent to evaluate the prospective units on an investment-to-income basis to determine the best investment property.

4. Obtain permission from the owner to visit the buildings with a crew of inspectors to determine the condition of the apartments and the common areas. Ask inspectors to create written condition reports for the electric, plumbing, gas lines and roof, with images of the buildings, to provide information for your potential lenders. Obtain written estimates from licensed contractors for any major repairs on the structures.

5. Construct your terms for an offer on the apartment building and consult private finance partners or commercial lenders to obtain loan conditions. Once you've determined the best financial terms for you, ask your agent to complete the sales contract and submit the offer to the owner's agent. Counter any differences in price and conditions until a mutual meeting of the minds with the seller. Once the offer is accepted and signed by both parties, open escrow on the multi-unit apartment building and notify your lender to begin the loan paperwork.

6. Write and present an offer on the multi-unit apartment building. Collect your back statements and financial reports to present to the lender. Include information about the apartment listing, including number of units, proof of expected rents and any special conditions related to the condition of the structure or common areas, including the reports made during the inspection and any repair estimates.

References

• National Multi Housing Council: Quick Facts - Resident Demographics
• State of New Jersey Department of Community Affairs: Bureau of Housing Inspection
• Community Housing Improvement Program, Inc.
• Apartment and Office Building Association of Metropolitan Washington
• National Trust for Historic Preservation: Nonprofit Organization and Public Agency Funding
• CA.GOV: Office of Historic Preservation: Historic Preservation Grants
• Marketplace from American Public Media: Should We Buy an Apartment Building?; Chris Farrell; February 2009

Resources

• "Wall Street Journal"; Apartment-Building Foreclosures...; Nick Timiraos, et al.; April 2011
• HUD.GOV: Fair Housing - It's Your Right