If there’s one exciting truth about real estate investing it’s the fact that it’s accessible and open to all. No matter your age, educational background, or current profession, as long as you have some money to invest with, you’re in.
Owning investment real estate can be a glorious gateway to financial independence while continuing to pursue a career. The appreciation and rental income stream can enhance an owner’s net worth over time. And one of the most profitable real estate roads to consider venturing down is in the commercial real estate sector and becoming the owner of small- to mid-size apartment buildings.
Want to know where to begin? The first step I advise you to take is to consider your objectives. The three most important factors in purchasing a multifamily property are: location, return on investment, and condition. Depending on your number one choice, it will have an effect on the other two. We are currently in a very strong seller’s market and finding good investment properties is more difficult.
It’s also important to have an exit strategy before you decide what you want to buy. You should ask yourself: Will this be a long-term hold or a reposition to sell? Will there be additional purchases? Good, long-term planning is the key to success.
My other piece of advice to beginners with no or very little experience is to start small. I always advise new clients to start with two to four unit small apartment buildings, or at least staying under 10 units. The advantage to having fewer than four units is the ability to use residential financing. This type of financing offers great terms, and it’s based more on the buyer’s financial strength than the cash flow from the investment. In addition, when you are ready to sell, there are more buyers in this investment category.
Assemble a good team before you start to look for properties. You will need an experienced broker, lender, title company, accountant/bookkeeper, lawyer, possible management company, maintenance person, and other vendors. The size of your team depends on the size of your investment.
When you eventually find an apartment complex you like, make sure you undertake a very thorough due diligence process. This will involve reviewing all of the books and records available, an in-depth inspection of the property, checking out the neighborhood, and anything else that pertains to the purchase of the property. The size, age, and condition of the apartment complex is going to dictate what needs to be done in the due diligence process.
I’ve been investing in apartment complexes for 25 years and love it. There are ups and downs, but when done right, it can prove to be a great experience, as well as a good, solid cash flowing investment. And as my father always said, more millionaires come from real estate than from anywhere else. —Terry Kass of GPCI Real Estate in Scottsdale is a Phoenix-area broker, speaker, and published author. Call him at 602.703.5277 or visit www.gpcimultifamily.com