5 Big Mistakes to Avoid When buying Your Apartment Building

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Paying Too Much for the Property
  • You make money when you buy a property, not when you sell it. This adage has been around forever… because it’s true. Themonthly incomeproduced by the property flows to you after all expenses have been paid (Net Operating Income-NOI). How much is this cash flow (NOI) worth to you? Now you know your offer price!
Not verifying the Numbers
  • The selling broker represents the Seller, not you! They will pulish the pig, put lipstick on it and dress it up! Then only show you the best side. Ecery property has its warts, it’s your job to find them and know what they will cost you to fix.
  • The number provided by the broker often are the POTENTIAL(or Pro Forma) Income & Expense, not the latest 12 month trailing Income & Expense. You have to understand the ACTUAL numbers so you’ll know what your monthly Cash Flow is. Compare the ACTUAL numbers from rent rulls and expense invoices.
  • The number provided by the broker often are the POTENTIAL(or Pro Forma) Income & Expense, not the latest 12 month trailing Income & Expense. You have to understand the ACTUAL numbers so you’ll know what your monthly Cash Flow is. Compare the ACTUAL numbers from rent rulls and expense invoices.
  • I can’t say it enough….. it is critical you know exactly how much income (rent + laundry +fees, etc.) is paid in, and how much in expenses are paid out. Cash Flow is King
Not know your competition
  • a. When you buy your property you must know the other properties your likely tenants are shopping (3 mile radius). What amenities do they have? How new are they? What are they charging for rent? Does that include utilities? Any move in consessions? How much is the security deposit? How does this compare to your income & expense analusis?
Finding Properties is Easier than Funding Them (Empty Pcokets at the Table)
  • Talk to your local bank, what is their appetite for the size, age and location of your target property type. Send them the property brokers numbers and see what they determines you’ll need to close. You must know how much you have to bring to the closing table (Don’t forget property tax)!
  • Partnerships are perfect for Apartment Investing. Starting out with someone who contributes capital and has done it before will jumpstart your success.
  • The bank knows the local market, they are a unbiased source. Just know that the larger the downpayment the larger your riskwi will Loopnet is the Grandaddy of commercial real estate websites. You can go to www.commercialpropertyhawaii.com to search and find porperties all over the country. But your bank will want 20-30% down depending on the age of the property. Generally the ulder the property, the more you will be required to put down. Know your budget, and
Not Managing the Manager
  • Good Operators = Great Returns. Your goal os to get as much Income as you can from this investment. So….keep the vacancy low (but not 100%) and keep increasing the rent as the units are renewed.
  • Property Managers see a full property as less work for them, no more tenant interviewing, no more credit or background checks. But Owners see 100% occupancy as a sign of complaicy on keeping the rent at market rates.
Know your Exit Strategy