Tips for Investing in Apartment Real Estate
Have you added real estate to your investment portfolio? Real estate allows you to expand your portfolio’s diversity and is a relatively stable asset. It typically increases in value provided you have done your homework and invested in the right properties. Whether you have or have not dipped your toe into the real estate market, you may consider apartment real estate. These are a few tips to get you started.
Review Your Investment Goals
Not everyone is destined to invest in apartment properties. Therefore, you need to know if this type of investment is right for you. For example, if you want properties that essentially take care of themselves, apartments may not be the best investment. However, if you are looking for a residence that has additional units you can make money on, these may be great options.
If a multiunit property is right for you, choose what type of apartment building you want to invest in. Do you a rehabilitated home or office building that has been turned into apartments, a large complex of multiple buildings, a modern building with multiple stories or some other type of setup? Your budget will often play a role in determining your property type.
Understand the Time and Financial Requirements
These properties have high initial capital investment requirements and ongoing cash flow requirements. Although you can live in one unit and rent the rest, allowing you to get a traditional mortgage loan, your cash requirements will be much higher. Not only will the property cost more to purchase, but you may have to place a larger down payment. In addition, you will be responsible for paying for upgrades, renovations and maintenance. You need to accurately calculate your cash flow. Investigate your prospective income and expenses.
In addition, they are time consuming, especially if you plan to manage the property yourself. You will need to address leasing contracts, turnover and maintenance. If you plan to work with a manager, your cash outlays increase. Therefore, you need to understand the financial and time requirements of these investments and determine whether you have the resources necessary to meet them.
Do Your Research
Due diligence is required for any major investment, but this is especially true in multifamily properties. You need to conduct an in-depth analysis of the market, neighborhood and building. You should review current leases, turnover and occupancy. You should also have the property inspected to identify any current or future repairs. Review the seller’s financials on the property and tax returns to calculate its long-term profitability. Search the owner’s legal documents for potential legal risks you may face.
Apartment real estate offers many unique benefits, but it also has challenges. Following your investment plan and doing your due diligence will place you in a position to make a real return.