Before You Buy Your Apartment Complex?
922
Finance > Real Estate
Mar 1, 2007
Tony Seruga, Yolanda Seruga and Yolanda Bishop of Maverick Real Estate Investments, Inc.
Before You Buy Your Apartment Complex?
Purchasing an apartment complex as an investment is a fantastic way to watch an asset single handedly generate thousands, even hundreds of thousands of dollars in a very short amount of time!
A popular investment strategy, especially for new investors, is to purchase a more run down, mismanaged apartment complex at high cap rates. The cap rate, or capitalization rate, is found by dividing the Net Operating Income by the Purchase Price. Properties that are low performing often sell their apartments at a higher cap rate because there is more of a risk associated with them.
These properties are in need of many changes in order to become a commercial property that is working at its maximum potential.
Before you purchase a large commercial apartment complex, you need to get certain information. This information is crucial to your assessment and evaluation of the property.
There are two states you need to understand regarding the property, the state it is in currently, and the state it will be in after you fix all the major problems.
When you first find or are introduced to a property, be sure to ask for the income and expense statements. A lot can be told from analyzing the numbers that are reported on a monthy, quarterly or yearly basis. You can even use them to see how the property has performed over time. You will be able to see gross rents, expenses, net operating income, and all the items in which income and expense fall under such as refrigerator rentals and pool maintenance, respectively. Use this tool as a way to project future income after raising rents, filling the vacancies, transferring all costs to the tenants, and making the community an overall enjoyable place to live.
You must know how many units are in the complex, and what condition they are in. You can see what condition they are in by checking a certain percentage of the total units and assume that most are in that condition. However, it is always better to check all the units so you know exactly what condition the apartments are in. This could be a basis for lowering the asking price if the units are in far worse condition than you originally thought.
The vacancy factor is an important one. When a property has many vacancies, like 20% and above, it is not performing well. If you can fill these vacancies, then your ability to turn the property around is much greater! You must view all working leases, and ask the current tenants to sign a paper to verify the leases that you were given by the owner or working manager. You would be surprised how many owners may try to decrease their vacancy factor by false leases, just to make their property more enticing. However, if you are fixing the property up, then the larger the vacancy, the more opportunity you have to increase value and find a profit!
In order to evaluate this property, you must divide the asking price by the number of units and see what the price is per unit. You can use this to compare other similar complexes in the area. You also want to know what they are charging as rent, and what type of leases the tenants have. If the rents are below market rents, then you have the ability to increase value there. If your tenants have a full service, or net-net lease, then you have an opportunity to change it to a triple net lease, where the tenants pay taxes, insurance and utilities. You can literally pass all the costs of running the apartment to the tenants. After all, they are the ones using the facilities.
I am sure you can see the themes here. You want to identify areas where you can either increase or create value that was not there before. Be sure to get all the facts and numbers verified before you purchase your great investment. Be prepared to do some work to turn the place around. However, it will definitely pay off shortly when you use some simple tool, like increasing the rent and painting the exterior, making it a community where people want to live! Tony Seruga, Yolanda Seruga and Yolanda Bishop of www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
A popular investment strategy, especially for new investors, is to purchase a more run down, mismanaged apartment complex at high cap rates. The cap rate, or capitalization rate, is found by dividing the Net Operating Income by the Purchase Price. Properties that are low performing often sell their apartments at a higher cap rate because there is more of a risk associated with them.
These properties are in need of many changes in order to become a commercial property that is working at its maximum potential.
Before you purchase a large commercial apartment complex, you need to get certain information. This information is crucial to your assessment and evaluation of the property.
There are two states you need to understand regarding the property, the state it is in currently, and the state it will be in after you fix all the major problems.
When you first find or are introduced to a property, be sure to ask for the income and expense statements. A lot can be told from analyzing the numbers that are reported on a monthy, quarterly or yearly basis. You can even use them to see how the property has performed over time. You will be able to see gross rents, expenses, net operating income, and all the items in which income and expense fall under such as refrigerator rentals and pool maintenance, respectively. Use this tool as a way to project future income after raising rents, filling the vacancies, transferring all costs to the tenants, and making the community an overall enjoyable place to live.
You must know how many units are in the complex, and what condition they are in. You can see what condition they are in by checking a certain percentage of the total units and assume that most are in that condition. However, it is always better to check all the units so you know exactly what condition the apartments are in. This could be a basis for lowering the asking price if the units are in far worse condition than you originally thought.
The vacancy factor is an important one. When a property has many vacancies, like 20% and above, it is not performing well. If you can fill these vacancies, then your ability to turn the property around is much greater! You must view all working leases, and ask the current tenants to sign a paper to verify the leases that you were given by the owner or working manager. You would be surprised how many owners may try to decrease their vacancy factor by false leases, just to make their property more enticing. However, if you are fixing the property up, then the larger the vacancy, the more opportunity you have to increase value and find a profit!
In order to evaluate this property, you must divide the asking price by the number of units and see what the price is per unit. You can use this to compare other similar complexes in the area. You also want to know what they are charging as rent, and what type of leases the tenants have. If the rents are below market rents, then you have the ability to increase value there. If your tenants have a full service, or net-net lease, then you have an opportunity to change it to a triple net lease, where the tenants pay taxes, insurance and utilities. You can literally pass all the costs of running the apartment to the tenants. After all, they are the ones using the facilities.
I am sure you can see the themes here. You want to identify areas where you can either increase or create value that was not there before. Be sure to get all the facts and numbers verified before you purchase your great investment. Be prepared to do some work to turn the place around. However, it will definitely pay off shortly when you use some simple tool, like increasing the rent and painting the exterior, making it a community where people want to live! Tony Seruga, Yolanda Seruga and Yolanda Bishop of www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
Write a Review
Add to My Favorite
Refer it to Friend
Report Article
Other links owned by this user
Let's face it. Not every property's listed asking price is really what the property is worth. In fact, the asking price for a property can be dependent upon multiple issues, none of which are truly related to current market value. Evaluating an
Category:
Many people may not realize you can literally become a commercial real estate insider just by working in your own local community. There is a wealth of opportunity for those who are motivated and wanting to make a difference, not only in their own
Category:
Purchasing an apartment complex as an investment is a fantastic way to watch an asset single handedly generate thousands, even hundreds of thousands of dollars in a very short amount of time! A popular investment strategy, especially for new
Category:
How many feet of road frontage doe the property have? Thi quetion i among the mot important when aeing the value of commercially zoned property in a city or county. For ome, the reaon a to why thi quetion i o important may
Category:
In commercial real estate you are constantly going to be using negotiation skills. Your negotiations skills will be put to use, not only in the process of creating an offer and working to get it accepted, but also with your contacts, brokers, buyers,
Category:
Commercial real estate investment is an industry of abundance. There is literally an unlimited amount of money available to people ho ant to borro it. So much, in fact, that you can literally purchase millions of dollars orth of commercial property
Category:
In commercial real estate, the quality of contacts and relationships you make is essential to your success. A good portion of this business relies on how you interact with brokers, buyer, sellers, engineers and city municipalities. In order to build a
Category:
Commercial real estate investing is an exciting and rewarding industry that yields results to which no other industry can quite compare. In fact, commercial real estate is one of the easiest ways to become extremely wealthy with limited knowledge,
Category:
Locating financing for every commercial project is not s an easy feat. Many items can affect the acceptance of a loan, how much is loaned, and under what specific terms the loan is given. As a commercial real estate insider, it is important to
Category:
Every day I am approached by people in residential real estate, by people in different professions such as medicine and law, and others who are not too informed on commercial real estate and what it is really about. When discover my profession,
Category:
Commercial real etate ha many tool that can be ued to maximize one' return on invetment (ROI). Among the many tool to chooe from, leverage i one of the mot effective way to limit (or omit) the amount of peronal money you put in a deal, and
Category:
It is absolutely pertinent for every person involved in commercial real estate to be constantly improving their education! A real estate insider is only as good as his or her information, this information must be up to date, accurate
Category:
In commercial real estate, finding money to fund your project or investment can be difficult if you do not know what lenders are looking for. Generally, lenders have strict guidelines which they use to determine if they are going to allow a person to
Category:
Don't you wish you had a crystal ball that showed you what is to come in the future? A simle wave over the crystal ball, the mutter of a magic word, and your entire future is there, revealed in front of you. Now that you know what is to come, you can
Category:
Becoming a real estate insider in your specific area of interest is the ultimate position you can achieve in your community. As a real estate insider, you will know the best investments, be able to take advantage of local trends, avoid pitfalls where
Category:
As a commercial real estate insider, you will need to evaluate income producing properties. You do this by analyzing the income and expense sheets o the subject property in which you are interested. Income and expense sheets do not involve
Category:
There are many types of commercial properties available to those who work in the commercial real estate industry. Many people like to work in a specific area by working with only one or two types of commercial properties. They do this because they have
Category:
Many commercial propery owners, especially of older properies, pay for many of he operaing expenses associaed wih he propery. The enans may pay uiliies, or some axes and insurance, bu for he mos par, he owner is responsible for paying
Category:
In any siness, one of the best ways to avoid failure is to avoid the things that cause failure. This can be done by identifying the things that cause failure, and avoiding them at all cost!It is normal to not know everything when getting into a new
Category:
In commercial real estate, cap rate, or capitalization rate, is used to determine the values of income producing properties such as apartments of five units or more, office buildings, strip malls and other such properties. The cap rate can represent
Category:
Other links at Finance > Real Estate
As you may hear more and more about investing in real estate the buying and holding method of gaining wealth with real estate is ideal. If you are just starting out, flipping a house may be an ideal way to get started as you will increase your opportunity
Category:
A story about the growing interest in the Alentejo region of Portugal
Category:
Buying a home can be the toughest decision one makes. If you are a prospective home buyer in CA or IL, here are some tips for you.
Category:
Don't buy a vacation home or timeshare unless you are buying only what you can use at a price that makes sense. You can afford a luxury home if you buy correctly.
Category:
When dealing with a complex set of real estate investments, you should use the most efficient tools available. Sometimes that means using investment property software for your computer to keep track of your investments and avoid human error.
Category:
Site Sponsor
Directory Statistics
Articles: 68222
Categories: 501
Yahoo Entertainment
