How To Buy Apartments

By Juan Cabrera, MBA realbench.net
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Investing in some business has always been a very meticulous process in a sense that it involves considering all the possibilities. You must have come across many people who have been considering investing in real estate since the economic crisis. But the problem is that there has been just too much emphasis on the issue by the media and the general problem has been exaggerated a lot. They think that the property would not yield that much returns, it would also start to devalue or would not appreciate its value at all, it would become hard to dispose them, the finance charges would keep mounting, credit rating would fall, standard of living would fall and the property would ultimately go back to the bank. So if you are one of those people who are thinking about investing in real estate then you should ascertain return on investment you are expecting from the business and then carry out the research so that you may know how beneficial it to invest in real estate really is. Below are the details of the scenario that you should have in mind while investing in real estate.

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Crestfallen

Many are of the view that investing in real estate jams up your money in one place which is also called tied up capital. This tied up capital is the money that cannot be liquidized (converted into cash) quickly and it does not produce enough return, if any. This is quite true because people do not have enough money to spend in real estate and make properties. So the market is not so hot and similarly the appreciation in the value of the property is another factor that is lacking nowadays since previous times. There used to be times when people invested in the properties and their value used to increase at the rate far much higher than shares in stock market. Real estate used to be a gold which was appreciating itself with the increase in population. Its limited supply used to be such a catalyst that high returns in this industry were not doubted by even the critics but now things are changed. Since the start of downfall in the world economy due to mortgage cases, people are more reluctant than ever to invest in this field. But luckily all is not lost and there is still some ray of light in real estate.


Ray Of Light In Real Estate

There is still hope hanging in there in the field of real estate. This ray of light means the multi-family real estate properties which are very much in demand for just too many reasons. Multi-family apartments are the buildings that occupy space of just one home but occupy many families in it so in this way the owner can rent this building to many families and have multiple return on the investment. This multiple return become not only the reason for the investment itself but it is also the reason that people are able to buy these buildings with no money at all. Well, to be honest, not literally ‘no money at all’. What I actually mean is that with a very little amount of money you can get an apartment building of your own.

There are basically three steps that need to be taken care of for this purpose:

1- Gathering resources
2- Ignition
3- Auto-pilot


Gathering Resources

It has two phases namely market research and arranging money to invest initially. This means getting to know that what are they selling and why are they selling it? First of all you would have to be sure that you know the market and the figures wandering around. This means the rate of return, property values, hot places and property appreciation rates out there and some other factors like that. You would have to derive the financial impact of all these things because a lot actions and money are dependent on them. So to be sure you can cross match your analysis with the competitors for free because no state agent would withhold such information if you tell him that you are interested in investing in that place. Of course that would not constitute an agreement on your part so you can ask such information from multiple agents and get an average figure. This research does not end here because there is still information that agents would love to withhold from you and that is the market intelligence. You would have to stay skeptic and ask yourself that why the owner is selling this property. There may be other issues unknown to you so you cannot let yourself be ignorant and suffer loss in the long run. So you would have to be sure that all the properties that you might be considering to buy are going to be in your benefit in the long run.

Once you have the figures decided in your mind that how much you are going to invest then you can proceed to arranging that money. Unfortunately this amount cannot be arranged from the bank for business purposes because you would have to show them the business’s capability to repay the loan so you would have to incorporate the company first or you can avoid the process of incorporation and make the investment in your own name. The difference in these two approaches is that by incorporating the company your liability towards the company would be limited to the amount of your shares so no one can touch your personal properties in the case of winding up of the company. So in either case you would have to make sure that initial investment to start investing is available. You can use your savings or sell out unused things from your store. This will get you a good amount of money and you can start purchasing the property.


Ignition

Now that you have decided the place of investment and you are motivated enough to work hard in this field, you should now start to be specific about the type of building you want to buy. This would obviously include the value of building, expected appreciation in the near future and the rent value this property would give you. Once you have selected the properties you can start to get them on mortgage from the bank. It is very easy to get an apartment building on loan because we all know that a multi-family apartment building would yield great rent income and can repay the bank loan. Banks realize this fact and provide loan very easily.

You’ll notice that the purchasing process of shopping malls and other similar properties is quite the same. But there is still a difference between the two types of purchases because in any other case there is always a certain level of uncertainty that the property would yield return and the loan would start to get repaid out of that return. However, in case of apartment building the property would be rented out in no time and the returns would start flooding. So the level of certainty that the banks calculate for the repayment in case of apartment building is very high. You would get the investment money quite easily and now you can now proceed to the next step.


Auto-Pilot

The property would now be ready to be rented out to the tenants. Tenants are available almost all the times but remember that you should not be looking for just any tenant because you have to negotiate the price and only the best payers are going to live in your property. They will pay the rent to you and you will pay the installments of your loan to the bank. This is the process that would keep repeating itself and at the end of the term you would have a property in your name. But this is not it because you will also be getting some money after paying to the bank if you are able to negotiate the rent successfully. If you think that you are not good at negotiating then you can hire a professional to get you tenants and good rent amount.

There is another way to having some part of the return to you and not let all of it go to the bank and that is redesigning the place before renting out. You can call your friends and get their advice on how to redesign the place so that it looks very neat and well managed. This would attract many people from the corporate culture and you know that they are well paid and they pay well. But to attract them you might even have to hire professional interior and exterior decorators so that you can charge premium on the property. But all this effort would be worth it because in the long run you would be enjoying owning a property and having rents along the way.

This process is called auto-pilot because now your headache is done because you have started this process and now you do not need to do anything but to receive the differential and enjoy it. Once you have set up an apartment building you can go further in this field and start to purchase commercial property and keep your business growing. In real estate, this is obviously not like some kind of a secret that now only I know and I am now whispering it to you. Apartment buildings are the beginning of almost all the successful real estate investors. This is because these are the fastest and easiest way of creating monthly income. They create huge profits and at very low investment which is also financed by the bank in turn.

There are many people who do not agree with this idea because they think that apartment buildings do not yield as much return as the commercial property so they should not go for that. They are right to the extent that apartment buildings do have a limit to the return. A lot of capital is tied up and return percentage is very low as compared to other investments. This is all true but we have to consider the reasons for this low return. In other types of investments such as stock market and manufacturing companies, there is a high level of risk of failing and even higher level of efforts required. We know that if someone knows a type of industry he should put his money in that field so the real estate business is not about buying the property and renting it out. It is about buying the property and selling it to the third party on the timely basis. You can imagine all the efforts required to consistently exhausting your contacts and public relations in order to sell the property timely. The more time a property takes in selling the more would be the loss. So to run the business you have to make a good directory of other real estate agents and good portfolio of relations that should be spread like a network over the area of your business.

All in all we can say that today we have had an insight into the practice of investing in apartment buildings. The three steps easy to list down but not so easy to carry out. Gathering the resources for your machine of business and putting them together to make them ready for ignition. And once it is done you have the last step that mostly involves not killing the business intentionally. There starts the autopilot and you have to do nothing but to keep renting out the property. In this way you can start making property with very little or no investment at all. The repayment becomes easier with time because the amount of markup falls and the amounts of rents increase every year. This is the tested method to have a head start and all you need is the drive to do real estate business. Level of knowledge and study required is negligible but one sure needs a good market research.

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ARTICLE CATEGORY:
How To Buy Apartments, How To Buy a Building, Apartment Investment, Multi Family

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