How to Purchase an Apartment Building

Like all real estate decisions, the decision to purchase an apartment building brings with it the potential for great gain as well as the possibility of financial loss. Whether or not there is a real estate boom or the market is facing a down turn, there are certain basics to take into account in order to make a financially sound decision.

Difficulty:

Moderate

Instructions

1. Research the area in which you intend to purchase the apartment building. An essential principle of real estate is location, location, location. Factors that you need to take into account include: demographics, home prices, curb appeal, unit mix, tenants and considerations such as historical significance and architectural appeal. For example, while purchasing an apartment unit that is close to a commercial area will cost you more than a building in the suburbs, the value of the property is likely to increase over time.

2. Learn the rules and regulations that govern multi-unit buildings in the area. There are often certain restrictions that are imposed on multi family residences, which typically don't apply to single-family homes. There are also particular the local, state and federal regulations governing the rights of your tenants and basic facilities that you must provide.

3. Evaluate the physical condition of the property. In addition to getting a professional inspection done, personally inspect and evaluate the apartment building and each individual unit. This will likely reveal any damage or need for repairs, as well as give you an idea of any improvements that can be made once you own the property. Carefully peruse the inspection report and address all the items of that are of potential concern.

4. Consult with reputable, competent real estate professionals. Your choice of real estate agent is possibly one of the most important decisions you'll make. Other professionals to consult with include a termite inspector to evaluate termite damage and infestation, a general inspector to evaluate physical condition and ensure code compliance, a title insurance office to provide a title report and insurance.

5. Interview some tenants and get information such as the period of time they have leased their apartments and their intentions to stay on or leave. They can also give you ideas on any problem areas on the property. Interview the property manager as well, if possible.

6. Calculate and evaluate the total cost of the investment. Gather all the financial information pertaining to the investment, from the property appraisals, loan documents, property taxes, rent, insurance etc. Evaluate and verify every single number in the financial statements.

7. Determine how the property will be managed and maintained, from collecting rent to shoveling snow or cutting grass. If you won't do this yourself, you can either hire someone to manage the property or you can offer a discount to one of the tenants to fill this role.