Buying an apartment building for beginners, is it really possible? Yes by following the clear principles listed and explained in the following article.
Commit to Multifamily
Very often it is not so much the decision itself but the decision maker that determines the success of a particular course of action.
In other words, once you make a decision to make multifamily your investment strategy, if you want to be successful, move ahead with confidence in your decision and don’t look back.
In the present market multifamily properties are tangible assets that represent a wise strategy to achieve your investment and wealth creation goals.
Because of the shorter lease terms that give room for regular increases in rent, multifamily assets represent a safer investment than other commercial real estate investment options.
The current demographics are also positive. The steady increase in the number of professionals in the workplace, families, and empty nesters looking to downsize and simplify their lifestyle means that it makes perfect sense to focus on the multi-family market.
Multifamily is a solid strategy for you as an investor to focus on so there is no need to second guess yourself.
Are you looking to achieve financial freedom through multifamily real estate investment? If you act with prudence and insight you can expect strong investment returns that are attractive and relatively low risk.
Educate Yourself
Almost every expert you ask about multifamily, regardless of the question, will mention the importance of educating yourself.
It’s important that you know about CAP rates and how to calculate NOI and all the technical details to communicate effectively with people in the multifamily investment arena.
You need to know these to properly evaluate a prospective multifamily property to invest in. But more importantly, your education is about more than just getting knowledge, it is about gaining wisdom.
How can you have the wisdom you need without experience? The simple answer is, by learning from the mistakes of others.
This is why resources such as meetups and podcasts are invaluable because you can listen to other investors and learn from the mistakes they made so that you don’t have to suffer those same losses on your way to reaping the rewards.
Be a great listener, apply the lessons learned and you will reap the rewards of patience and humility.
Answers to the Top 10 Questions About Buying Your First Apartment Building
I interviewed Peter Harris, author of the best-selling book, “Commercial Real Estate Investing for Dummies“. Peter has acquired over $100 million dollars worth of apartments and other commercial properties all across the United States.
In this interview, Peter answers the 10 most commonly asked questions about how to get started buying your first apartment:
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Research Markets
Neal Bawa Founder / CEO at Grocapitus and MultifamilyU, makes the point in one of his podcasts that there is no such thing as a property market cycle for the whole of the United States.
Rather, each separate state and geographic region exists independently and has its own market cycle depending on a multitude of factors.
Whereas markets such as San Francisco may be in their 9th inning and the bubble is about to burst, other markets in the U.S. will be entering into the prime period for investing which Bawa reckons to be around about the 4th or 5th inning when the upward momentum is well and truly set for continued growth.
He puts markets such as Orlando and Las Vegas at the top of the list at this point in time.
Do your own research and look at multiple sources and select your investment market wisely.
Choose How to Manage Risk & Gain Credibility
You’ll want to start out in a way that reduces your risk. There are two main ways you could do that.
- The first option is to start small and scale up once you have some experience.
- The second option is to work with someone who is already experienced.
Start Small and Scale Up
Starting small can be a great way to keep the risk factor manageable while you learn the ropes.
Breaking The Barrier
Maybe you feel like there is a barrier between you and your first deal, like having little or no money or not being able to qualify for a loan.
Below is an example of how one investor took that first step, broke through several barriers and purchased his first small property.
The Results
- He gained experience with minimal risk
- He got the credibility he needed
- He earned the cash to trade up and invest in larger properties
How Did He Do It?
This investor had no job and no savings when he got his start.
He attended an investment seminar in 2007 and learned he had to do 3 key things to help him get his first multifamily investment:
Step 1 – He needed a salary in order to get a bank loan. (He got a job truck driving.)
Step 2 – He needed to save $10,000 – $15,000 for a downpayment on a loan.
Step 3 – He needed to have the property produce income.
If you already have savings and a steady job, this will save you taking the very first steps that he had to take. It will also save you a lot of time.
He got a mortgage for $75,000, (to also cover the cost of renovation). He purchased a duplex for $65,000.00, in 2009. The downpayment was just $5,800 and the loan repayments were $750.00 per month.
Ultimately he got two tenants, each paying $875.00 per month. A total of $1,750.00 per month income.
He was making $1,000.00 profit a month.
After that he kept the property for another year and a half and then decided to cash in by selling the property for $150,000, double the initial investment.
While these are exciting results, you need more than one rental property to achieve your goal of financial freedom.
With this first deal under his belt, now he has money he can invest into a bigger property. He also has experience managing a rental property plus credibility he can leverage to get investors for larger syndication deals.
This is one way to start building your property portfolio and be on your way to financial freedom.
A second option is to work with someone more experienced.
Choose A Mentor, Coach Or Partner
Investing in real estate is hardly a new endeavor and there are many individuals who have learned to master the art of making sound investments in multifamily properties.
There are many of these individuals out there that might be willing to mentor you but as with all things, there are also those that might just like to take your money.
So how can you choose a mentor wisely?
Firstly you will want to be convinced that the one you are going to be guided by is more than a theorist but somebody who has actually walked the walk.
Take a close look at the prospective mentor’s track record and make sure they are legit.
It’s shocking to report that some do not even take the trouble to do a Google search of their prospective mentor before taking steps toward a business relationship.
Read everything you can online about that person and check out as many testimonials as possible before making a decision. You might check a site like Bigger Pockets to see what others have to say. Don’t be discouraged because a couple people have something negative to say, since some (unsuccessful) people are just negative or think it’s a waste of money to hire a mentor. But if you see a concerning pattern, you may want to find someone else.
Of course, just because you may find the right person to work with there is no guarantee that they will want to work with you.
That’s why sometimes the very best type of mentor is one that you come by organically by growing your network and by going about your business.
It’s a relationship that happens naturally as a consequence of moving around in the real estate investment world and pursuing your goals with integrity and passion.
Learn How To Analyze Deals
One of the first things that you learn about analyzing a property deal is that, either by design or by mistake, there are a lot of fictional numbers out there.
Sellers and brokers will provide you with statistics that may be less than accurate for obvious reasons.
You will need to learn to ask for and analyze bank statements, tax returns and rent roll income documents in order to get a true and accurate picture.
You will also need to learn to verify the actual operating expenses of any given property.
The biggest mistake that newbie investors make is in underestimating the operational expenses.
A good guide when calculating the expense per unit is to compare that with the average expenses per unit in the area, and in your submarket, to see if they are on par with your calculations.
A great tip when you’re first getting started is to run the numbers on several properties that you’re not really interested in (have no emotional attachment to) so you can get the practice you need while the stakes are low. Download the “How to Get Started With Apartment Investing Toolkit” to get the resources to be a better, more experienced deal analyzer.
Seek Out Properties With Value-add Opportunities
This may begin with the very perception of the property itself. If there is room to reposition the property in a way that it is perceived differently, this is your first value add opportunity.
Improving the type of tenant that you rent your units to is another way to increase profits. The right kind of tenant means fewer evictions, less damage and, more regular payments.
There are many other ways to add value to your property beyond renovations. A good investment property will present you with multiple value-add opportunities.
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Getting the Right Start
Investing in multifamily property can be an important next step for you. Doing so can allow you to produce more income and build net worth faster. Follow closely the above-mentioned principles and you will be up to the challenge.
Once you decide to take the plunge, an essential early step is to establish a professional online presence by getting your website up and running. This will be necessary for every future step you take as a property investor in a wired world.
To get the right kind of site that positions you as a person that truly belongs in the multifamily investment arena can seem like a daunting prospect but don’t worry, we have you covered.
Apartment Investor Pro sites are designed specifically for real estate investors. They can be easily customized for your needs and content and they come at a fraction of the cost that you would incur if you had your site built from scratch.