Before investing in an apartment building, get an education and good advice from professionals. Everything in business is a risk, but time spent planning for every eventuality will reduce missteps.
Step 1: Research real estate Research commercial real estate online and in books, learning city and state government laws. Gather information on field terminology, property management, and sound money and business practices through coursework at local colleges.
Step 2: Consult with advisers Consult with a team of commercial real estate advisers, attorneys, investors, and trusted business associates. Use their proven financing and acquisition expertise to find property to purchase.
Step 3: Assess the value Assess the building's value based on the shape it is in now, and estimate what it will be worth after major deficits are corrected. Review weekly, monthly, and yearly income and expenses to get a history of the property.
TIP: If the building is not already profitable, a bank won't typically lend money to a first-time buyer of an apartment building, even with optimistic market projections.
Step 4: Examine all leases Examine all leases to determine current vacancy rate, requiring that owners and tenants verify the information in writing.
Step 5: Compare other buildings Compare vacancy rates in other area apartment buildings. Higher-than-average vacancy in a prospective property suggests poor performance, but might also mean a lower buying price and a better opportunity to make a profit later.
TIP: Investment is always a risk. No matter how much homework you did, you might buy the wrong building for the wrong price. Some things can only be learned by doing.
Step 6: Map an exit strategy Map an exit strategy before you buy, in case things don't go as planned. Convert the apartments to condos, try to refinance, or use equity to buy more lucrative properties to spread the risk.
FACT: Large commercial real estate sales numbers in the United States in the first quarter of 2010 dropped over 41 percent from October 2007.