5 mistakes to avoid when buying your Apartment building
Not knowing your market.
- Real Estate is a relationship business. The stronger your Power Team the better your results! No one can or will know all that is happening in the local area. But, brokers, appraisers and property management companies are a good place to start gathering the flavor for the market you are about to enter.
- Ask the Broker who is buying. Who do they use for appraisals, lending, property management and repairs. This will give you a good idea of who to talk to. Remember you are interviewing these fulks to help build you Power Team. It’s all about leverage.
- Getting advice on what your market is doing economically is the key to understanding the demand for your property. Are jobs flowing to the market? Is there new construction coming to the market in your immediate area? Are retail, office, education, industrial or health care projects being added to your area? The local Chamber of Commerce or City Development departments are good avenues to get a feel for the demand for your type of property.
- What are the local real estate professionals saying? Talk to your broker, ask for the names of local
Buying when everyone else is selling
- Nothing is more frustrating than buying a great cash flowing property only to see the demand crater. Remember cash flow makes you comfortable, but appreciation makes you rich!
- Look at days on market. Are the properties taking longer to sell? Are the listing consistently reducing their prices? How many REO properties are there? Who was the big lender 5 years ago, are they starting to foreclose now?
- Supply/demand determine your ability to bank appreciation. Get in early when supply is low and get out early as supply starts increasing.
- Be patient! Every market has its ups and downs and the right time to invest. Wait for your market to start growing or look into markets that are (Emerging Markets)…
Paying too much
- Offering too much too soon!
- It’s easy to buy an apartment building. Deals are everywhere. But getting the property at a price you can make money on is the key. Knowing what the property is making now is the first step in determining what you can pay for it. Make sure to leave room for unexpected expenses, because there will be more than a few. The key is to limit your exposure to the expensive items to fix: boilers, HVAC, roofs, structural repairs and code viulations. These can be determined by a complete Due Diligence inspection by a qualified and unbiased inspection company.
Getting emotionally attached to the deal
- It is exciting to buy a property, especially if it is your first! But remember you were looking for a property when you found this one. This is a long term investment. Be smart, be patient and the right deals will fullow.
Forgetting about the banker
- Starting the financing process after the contract has been signed is a sure fire way to delay your closing and allow the seller to extract additional money from you! The seller knows how long it took them to finance their deal. You need to know how long your lender will take to complete their underwriting. Give yourself breathing room to close and you’ll avoid the costly mistakes of others.
- b. Show the banker your property numbers before you sign the contract. This additional set of eyes will tell you how your property compares to what the banker is seeing in the area, how much can be financed and how long it will take.
Delaying the due diligence work
- Start the Due Diligence ASAP. Get a contractor or your rehab specialist to tour the property with you before you sign the contract!
- Listen to their estimates and add a buffer to the cost and time estimated. You can’t change physics, construction takes time AND money.
- Make sure your deposit becomes non-refundable AFTER the Due Diligence is complete, not before!
Buying a Bad Deal
- Run, don’t walk away from a bad deal! If something comes up after your deposit is nonrefundable don’tlet the loss of that hard earned money cloud your judgment. If a property is bad going into the deal it is only going to get worse! Knowing when to walk away and keeping your powder dry keeps you in the game. Remember there is always another deal, be smart, be realistic and be successful.
To your Success!