The beauty of apartments is that it is the one type of real estate investment that is easy to scale and build your real estate business, even part-time. HOWEVER, the bigger upside needs to be tempered with the potential for a bigger losses as well. Make sure that you have looked deeply into each element listed below:
Sub-Market knowledge: Location, Location, Location
The ONE thing that you can’t change about an apartment building, no matter the condition of the building or the great price, is the LOCATION. Make sure that you thoroughly understand the visibility of the property to potential tenants, and that the path of progress is moving toward you, not away from you. You can make improvements to the units, rebrand and market the heck out of it, but the location doesn’t work, your efforts will be a losing battle.
Make sure that you have done a thorough inspection. When we go to a multifamily property during the due diligence period, we have a whole crew swarming the property, from the building trades for the physical assets to our administrative team pouring over the leases. You do NOT want to find out after purchase that there are drainage issues… AND this can be an opportunity to revisit the purchase price for a possible “re-trade” or reduction.
Make sure that the assumptions that you are working off of are as accurate as possible. When were the taxes assessed? Make sure that you have taken into account any possible tax increases so you are not surprised.
We always encourage our clients to buy an apartment building with several different scenarios penciled out. Is it possible to refinance and take the proceeds to use in another property? Is your plan to buy and hold? Make sure that you are not cemented into one plan or another, because even we can’t see into the future!
These four areas are places where multifamily investors can get seriously hurt without the right guidance. Make sure that you carefully investigate all of the above items as well as have a step by step system to follow for all of your due diligence items. Our Elite Apartment Coaching program was created to be the backstop for both beginner and sophisticated investors; to make sure that they don’t make any expensive mistakes.