Purchasing real estate can be a good investment. If you are already in the real estate game, there is a good chance that your goal is to acquire an apartment complex at some point. The returns on owning an apartment complex can be great, which is why owning an apartment building is often thought to be the gold standard when it comes to investing in real estate.
The main barrier for purchasing commercial real estate is often the cost of this type of investment. More significant apartment buildings will usually have a price of more than a million dollars, which means that you will need a down payment of about 25% in order to get your hands on a decent apartment building. If you are considering buying an apartment complex, there are a few things that you should keep in mind.
Net Operating Income
The net operating income is significant when it comes to owning an apartment building. When a property is marketed, brokers will come up with an opinion about the net operating income. This is essentially an opinion about the expenses and income of the property. It is important to remember that the NOI is an opinion and not an exact measurement. It is essential to run your own numbers on the property in order to fully understand the potential that it might have.
There are different ways to maximize the profits of an apartment building. Some investors will want the premises to be 100 percent occupied and will forfeit some rent in order to make this happen. Others might maximize rent and run buildings at just 90 percent capacity. It is also essential to think about other sources of revenue, such as pet fees, parking, and move-in fees that you may charge for your apartments. All of these will affect the overall net operating income of an apartment complex. Any improvements you plan to make will affect the expenses and income of the property as well.
One of the most significant line items when it comes to expenses is property taxes. It is crucial to find out how much the property taxes on these types of buildings will run. It is a good idea to talk to a tax attorney with local market knowledge to help you determine what the taxes on your potential property may be, as this can affect the upside of your planned investment. If you don’t want to spend the money on an attorney at least call and have a conversation with the accessor before you purchase the property.
Minor repairs such as a leaky faucet in one or several of the apartments should not bother you when it comes to your investment. Instead, focus on the larger systems of each building. This includes the roof, windows, cooling and heating systems, and electrical and plumbing. Another thing can be overlooked is balconies, the wood on the balconies rots and can be a major expenses to repair so make sure you inspect those. Find local experts to check out these items for you and give you their opinion. This feedback will provide you with information about the systems and whether they are going to need immediate attention or might require attention down the road. Budgeting for these items is vital when you are making this large of an investment.
Manufactured Home Communities
If you are unsure about purchasing apartments, another option that you might want to consider is purchasing a manufactured home community. These communities also offer great investment opportunities. You can buy several mobile homes in a specific area and then rent them out to tenants. The maintenance for these properties is often less because there are fewer homes to maintain than you would find in most apartment complexes. In addition, mobile homes often come with higher rent, which can increase your profits as a landlord.
When it comes to real estate of any kind, location is one of the most important factors to consider. It is important to remember that what makes a good location for a home is different than what makes a good location for an apartment building. If you are considering a manufactured home community, you will also want to think about the area where the community will be.
Good locations for apartments will have easier access to transportation, be located near major employment areas, and be convenient for daily shopping. Manufactured home communities often have similar needs, but can still be well established in the regions that are a bit outside of the city and offer some great land to go with the properties.
No matter what type of real estate you plan to invest in, hiring a quality property manager is going to be essential to your business as well. If you keep all of these things in mind, you are on your way to potentially having a profitable real estate investment company.