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Buying Your First Apartment Building: Four Tips For Success

10 August 2017

Alexis Garcia

Buying an apartment building and renting out the units can be a good way to earn some extra cash. However, there are many landlords who do not approach this investment correctly and end up spending more than they earn in the long run. If you want your apartment investment to be a positive, money-making experience, then make sure you follow these tips for success.

Work with a lawyer.

There are so many intricacies to buying an apartment building that don't exist when you're buying a single-family home for self use. The apartment building will technically be purchased and owned by your business, making it commercial real estate, and the mortgage lender will look at your projected income from the rentals to determine how much they're going to lend you. Because you've never navigated any of this before, it's very easy to slip up and fill out certain paperwork incorrectly -- or even to miss important pieces of paperwork. Hiring a real estate lawyer who has experience working with rental properties will ensure the process goes smoothly and everything is done "by the book."

Don't skip the inspection. 

It's true that having an apartment building inspected is a hassle, especially when there are residents currently living in the apartments and you need to allow the inspector access to their homes. However, skipping the inspection will just lead to more headaches down the road if there are major repair issues you're not aware of when you buy the place. Always opt for the full inspection, and if it turns up any issues, lower the amount you offer the seller. You can put the money you save towards making repairs, which will allow you to charge more for the newly repaired apartments. That's a win-win in your book -- you save money and also earn more later on.

Carefully evaluate the rental rates in your area.

Just because the current owner is charging residents $500 does not mean that's the price you have to charge. When you purchase the building, you can lower rent to attract new residents to fill empty apartments, or you can raise rent to make it more comparable to other buildings in the area. Do your research, checking similar buildings to see what they are charging. Then, decide on what you will charge once you own the building. Use this number in your calculations of how much you can afford to borrow and pay -- not the current rent number. When the time comes, your lawyer can help you draft the appropriate letters to let current residents know about the changes in rental fees if you do indeed make them.

Talk to some of the residents.

Knock on the doors of some of the apartments during daylight hours. Talk to whoever answers about what they like and what they do like about living in the apartment building. You might find out, for instance, that the pipes are frequently getting leaks and that the current owner has not done much to repair them. Or you may find out that while the current residents like living in the building, many are considering moving because the neighbors are too noisy. A building's owner will always try to paint the building in the best light when trying to sell it, but the residents will typically be more open and honest about the structure and its defects. You'll then have to decide whether the defects that are revealed are ones you can deal with or not.

If you follow the tips above, you're more likely to make a wise decision about the purchase of your first apartment building. 

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