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4. Look For the Right Types of Apartment Buildings
Now that you have a budget planned out and a few different property financing options, it’s time to look more specifically at the types of buildings available to you and what purposes they serve.
Building Class |
Size & Purpose |
| Class A Building: Newer buildings (usually less than 10 years old) that include amenities such as pools, fitness centers, and office spaces. | Low-rise: Typically contains between four or seven stories, and sometimes less than four. |
| Class B Building: Buildings with fewer amenities but still less than 20 years old and in good condition. | Mid-rise: Usually contains between five and 10 stories. |
| Class C Building: Typically 20–30 years old with no amenities and could use some fixing up. | High rise: More often than not will have more than 10 stories and ample amenities. |
| Class D Building: Buildings in need of large-scale renovations, often in low-income areas. | Multi-purpose: Contains workspaces, living spaces, and/or entertainment spaces. |
Understanding the different building types can help you narrow your focus when looking at buildings for sale. For example, if you have a smaller budget, looking at Class A high rises likely won’t be worth your time unless you plan on partnering with other investors.
How To Find Apartment Complexes for Sale
The most obvious way to find apartments for sale is through online databases such as PropertyShark, LoopNet, and Crexi. When looking at online listings or talking with real estate agents for online listings, make sure you ask the following questions:
- Why is the property being sold?
- What are the main issues with the building?
- Are there any liens on the property?
- Who are the current tenants?
- How much is currently collected in rent per month?
- Are there detailed records of operating expenses?
- What exit strategies are available?
However, not all buildings for sale are listed online. Because of this, networking with real estate agents, other investors, and even real estate lawyers can lead to potential opportunities down the road. Attending real estate conferences and joining real estate investor groups are just two ways to network with these individuals.
5. Find Good Property Management Services
After you’ve found an appropriate building for your budget and ROI goals, you’ll want to consider how you’ll manage the everyday affairs of said building. While you may choose to manage it yourself, it may not be the best use of your time, particularly if you plan to invest in multiple buildings. This is where hiring a property management company comes in.
A good property management company or property manager collects the monthly rent, handles defaulting tenants, and keeps detailed records of the building – among other things. Hiring property management services can be expensive. However, if you don’t live near your real estate investment or don’t have the time necessary to take care of the more mundane tasks, it may be your best option.
Before hiring a property manager or property management company, look through online reviews to get a sense of what tenants think about them. You’ll also want to consider what services they offer and how their pricing compares with other companies in the area.
6. Finalize the Deal
Once you have your budget outlined, pre-approval from two or more lenders, a few specific buildings you may put offers on, and a plan for property management, you’re ready to finalize the deal and move forward. If one of your official offers is selected, you’ll then want to confirm a partnership with property management services as soon as possible or make a plan for how you will manage the property yourself.
Additionally, keep detailed records of different ROI metrics such as your capitalization rate and cash-on-cash returns. Owning an apartment complex can be a lot of work, so keeping detailed records can help you identify if your property is making you money. If your ROI isn’t as high as you’d like, you may want to start looking for different properties on the market.
Pros to Investing in an Apartment Building
Although owning an apartment complex can be more expensive than investing in single family homes, the benefits may actually outweigh the cons. However, seeing the benefits is often dependent on doing your due diligence first and making sure you’re putting your money in a reliable investment.
- Consistent cash flow: Renting units in an apartment building can provide reliable and consistent passive income.
- Reduced risk: Having multiple tenants throughout a building reduces risk of financial loss from vacancies.
- Economy of scale: Unlike owning four different single-family homes, an apartment building with four tenants is only subject to one set of property taxes and has only one roof, among other things. This increases your overall cash flow by decreasing your expenses.
- Tax benefits: In most instances, you can deduct operating expenses and maintenance costs associated with your property.
Investing in apartment buildings can help you build wealth quicker than investing in single family homes. However, as with any investment, there are also drawbacks.
Cons to Investing in an Apartment Building
The difference between a successful investor and an unsuccessful investor is how they handle difficulties that come along. Keep reading to learn about the cons to investing in an apartment building so you can be prepared for anything that comes your way.
- Lower liquidity: Apartment buildings often take longer to sell than other investments and the closing period can be time intensive.
- Potential vacancies: As with most types of real estate investments, you may experience vacant units, which can reduce your overall cash flow.
- Time-intensive: Finding and purchasing an apartment building can take months at a time, while managing it can be an even greater time investment.
- Up-front costs: Apartment buildings are significantly more expensive than single-family homes and other investment opportunities.
Despite these drawbacks, there are many things you can do to protect yourself and your money. Having a plan for how to find new tenants when others leave, balancing your portfolio with other investments, and hiring property management services are just a few things you can do to mitigate against some of the risks.
How to Build an Apartment Building
If you’d rather build an apartment building, you’ll have to go through a few more steps than if you are wanting to simply buy a property. The first steps are the same – determine your budget and ROI goals and locate your ideal market. Rather than getting pre-approved for a small balance commercial loan or something similar, you’ll want to get pre-approved for a ground-up construction loan.
Once you have your location picked out, you’ll need to find a construction crew or building company that fits your needs. After identifying a reliable construction partner, you can move forward with finalizing your financing and purchase of the land, and begin the construction process.
FAQ
Learning how to buy an apartment complex can be overwhelming at first. You’ve likely had more questions come up than we answered above, so look through the following frequently asked questions for additional insight.
What’s the difference between apartment complex vs apartment building?
Apartment complex and apartment building are often used interchangeably. Generally, however, apartment complexes contain more than one apartment building and typically include amenities such as swimming pools and fitness areas.
Is buying an apartment complex a good investment?
Yes, if you have available funds and are strategic about the property you purchase, buying an apartment complex can be a good investment. Although purchasing an apartment complex can be more expensive up front than buying a single-family home, it is often more beneficial in the long run.
For example, if you choose to live in the apartment complex, you could potentially have your own living expenses covered fully or partially through other tenants’ rent – leaving you with more money to invest elsewhere. Return on investment is also greater with multifamily properties because you have a greater number of tenants.
Now that you know how to buy an apartment complex, contact us today to start the process of building out your investment portfolio.
