How to Own an Apartment Building

Apartment buildings are great investments, and they present the opportunity to earn passive income. However, a few apartment buildings aren’t good investments. They may feature hazardous living conditions, and the tenants may be unreliable. Before making the decision to purchase an apartment, consider several factors.

Difficulty:

Moderate

Instructions

Things You'll Need

• Real estate agent
• Investor loan
• Inspector
• Down payment
• Closing costs

1. Decide what type of apartment to buy. There are many different types of apartment buildings. These include multi-story city apartments, duplexes and triplexes. Before looking for a rental property, decide on a type of dwelling. Although larger apartment buildings provide more income, new investors should start small.

2. Choose a good realtor. Ideally, it’s best to select a real estate agent who has experience with apartment buildings.

3. Ask about the building’s cash flow. Once you’ve located an apartment, ask to see the income and expense statements for the past 24 months. If the apartment building’s current owner isn’t making any money, it’s not a good investment.

4. Conduct market research. Rent payments for each unit should compare with similar apartments in the area. If rent payments are too low, and the apartment building has a cash flow problem, you may have to increase the rent.

5. Inspect the property. Ideally, it’s best to buy apartment buildings that don’t require extensive improvement, especially if you’re working with a small budget. Arrange an initial walk through inspection, in which you can assess the building's condition. Afterward, have the building professionally inspected, and calculate the improvement cost.

6. Make an offer. Before making an offer on the apartment building, speak with your real estate agent or a lawyer. Ask for recommendations and have them review your offer.

7. Apply for financing. Once the seller accepts your offer, it’s time to find an investor loan. Getting a loan for a rental property is different from an owner-occupied loan. The bank evaluates your current finances. In addition, they’ll want to evaluate the property’s income and expenses.