Buying an apartment complex is a great investment. With it, you’ll have a dependable income stream, enjoy tax benefits, and diversify your investment portfolio. The value of apartment complexes also increases over time, so you can earn more in the long run.
To enjoy these benefits, you need to be careful when you decide to buy an apartment building. This investment will require a lot of money, and not knowing the steps to follow will put all of your resource down the drain.
Here’s a simple guide to help you when you buy an apartment complex:
1. Understand The Different Types Of Apartments
Just because you want to earn passive income from an apartment complex today doesn’t mean you should start looking for options the following week. Diving into the real estate industry without having sufficient information can result in stress and debts.
When buying an apartment complex, start by educating yourself on its various types and classes. Today, apartment complex comes in different forms, and each offers different pros and cons.
Generally, an apartment complex is classified into the following:
- Class A: These are luxury properties that are less than ten years old or recently renovated buildings. Class A apartment complexes are often mid-rise or high-rise buildings and offer different amenities, namely clubhouses, pools, and tennis courts.
- Class B: An apartment complex is considered Class B if it’s almost 20 years old and well-maintained. Some apartment complexes under this classification offer more dated amenities than Class As.
- Class C: An apartment complex that’s over 30 years old belongs to the Class C category. These properties often require minor repairs or renovations here and there.
- Class D: These are properties older than 30 years and offer a few amenities. These buildings require major repairs and renovations.
Aside from using the best real estate investing apps today, picking the right type of apartment complex can also make or break your success. Most investors purchase an apartment complex in classes B and C as these properties are cheaper than Class A but don’t require major renovations like Class D properties.
2. Locate An Apartment Complex To Buy
After you’ve picked an apartment complex that suits your budget and financial goals, it’s now time to locate a property. This process is often time-consuming and stressful, yet one of the most important. Ideally, you should scout for at least three apartment complexes before choosing one.
Some of the most common ways to locate an apartment property are:
- Search on your own: This option is more affordable as you don’t have to pay commissions to real estate agents. But since you’re doing all of the hard work, you should be willing to exert a lot of time and effort on your search.
- Use a local real estate investment association: Find and join the local real estate club in your area. These organizations can connect you to other investors who own apartment complexes or know individuals who do.
- Work with a real estate agent: Hiring a real estate agent is a cost-effective investment as they have access to numerous properties for sale. With their help, you can find the perfect apartment complex fast without any hassles.
3. Finance The Purchase Of The Apartment Complex
One of the most crucial steps in buying an apartment complex is choosing the right financing option. Unless you have sufficient cash to pay for the apartment complex upfront, you’ll likely have to borrow money and apply for loans to afford the investment. This can mean spending thousands of dollars plus interests for several years, so make sure to pick the right loan.
Below are two of the most common financing options you can avail of when buying an apartment complex:
- Commercial loans: Unlike other types of loans, commercial loans have fast closing and a simpler application process. This type of loan also allows more room for negotiation, which means you’ll have the chance to buy a complex apartment for less.
- Private loans and seller financing: With this type of loan, the seller will allow you to make periodic payments after paying a down payment. There are also private parties who’ll lend you money to buy the apartment complex, and you’ll make payments to them.
Most lenders will approve your loan if the apartment complex you’re eyeing to invest in has good market potential and high occupancy rates. These qualifications should motivate you to look for good-grade apartment complexes in good neighborhoods.
Take Your Time
As you can see, buying an apartment complex is a long process. You need to tick off several tasks from your to-do list before you can start earning passive income. The entire process might last for several weeks and even months.
But since an apartment complex is an important investment, take all the time you need when buying one. The more careful you are in buying an apartment complex, the better chances you’ll have in ending up with the best investment!