What to Consider When Buying Apartments

modern Apartment Balcony at Sunset

Buying an apartment building as an investment requires a very specific set of steps and details. While this may appear similar to purchasing a single family residence, as you dig deeper you will learn of additional considerations and financial implications.

From finding the right apartment to considering the location and amenities, the details of each transaction will be unique. 

Cash Flow

When investing in apartments, cash flow is one of the most important details to pay attention to. No matter what you are buying, you want to make sure you are cash flow positive from the start. In other words, you want the investment to bring in more money each month than you are paying out.

To improve your chance of doing so, here are several tips to consider:

  • Search for foreclosed apartments with a lower price than comparable buildings in the area.
  • Learn as much as possible about the market you are buying into, with an eye towards the average rental.
  • Seek out the best interest rate on your financing – the lower the better, especially when you are spending a large amount of money.

In addition to these tips, you need to break down your potential monthly income along with the expenses:

  • Income includes rent received from tenants.
  • Expenses include your monthly loan payment, taxes, maintenance, and insurance (as well as anything else you have to pay out).

Equity

When buying an apartment it is best to be in a position of equity from the start. In short, you want to owe less on the loan than what the property is worth. If you find yourself in this position, you never have to concern yourself with your loan being "underwater".

The amount of equity you will gain upon purchase is based largely on how much you pay, how much money you borrow, and what the property is worth.

One of the best ways to gain instant equity is to consider cheap apartments that are still valued along the same lines of other buildings in the area.

Appreciation

While you never know what the real estate market will bring in the future, it is important to note that apartment buildings will appreciate over time.

The amount of appreciation is based on many factors, including but not limited to:

  • Location of the building.
  • Condition of the building.
  • The local real estate market.

While you cannot control the market, you can control the area in which you purchase as well as the condition in which you keep the building.

There are apartments for sale all over the country, many of which will be snapped up by real estate investors in the near future.

Those who are interested in buying an apartment should consider this advice, and then use it to find and purchase a cash flow positive building with an eye towards future income and appreciation.

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