Last week I ran into a guy who, somewhat naively, asked me, “Will you send me an email on how to buy apartment buildings?”
Well intentioned, but not easily handled in a single email.
Real estate is my primary business. Specifically investing in multi-family properties. I could write several books on the topic. In fact, my book Investing in Apartment Buildings: Forcing Appreciation On Multifamily Properties Using A Value Add Strategy is coming out this spring. (Be sure to sign up for advance notice at this link!)
Buying apartment buildings is a whole new world from buying single family houses. But one thing holds true for both real estate niches. Location is key.
So, what will I tell my new friend who wants to buy apartment buildings?
It’s simple…
Study, study, study the local real estate market
You’ve heard the line “location, location, location” — the three most important factors in buying real estate.
Location holds the key when you’re talking about real estate value. You can buy a cheap property in a dead market — and it’s still a dead market. Doesn’t matter how cheap the property was, you did not make a good investment.
The “millionaire maker” multifamily, or apartment, markets are those where jobs are coming to the area, the oversupply is used up, the rents are starting to increase and the market is beginning to appreciate.
Some great questions to ask about real estate markets… and the resources to find the answers
Do you know what the job growth and employment outlook are for your target area? How about apartment demand? Is the oversupply used up? Are rents on the increase? Do you know what the average vacancy rates are for your market?
A good source of information for a specific area on housing, the economy, cost of living, demographics and more is Sperling’s Best Places and you can always see what the census bureau has to say, although that info is dated.
I recently wrote an article on Top 20 Criteria for Locating Hot Real Estate Markets — check it out.
Researching a rental market
Craig’s List and Rent.com will give you an idea for supply and demand for a particular area. You can research rental rates, volume of listings and competition for a particular submarket. Look for concessions such as free rent, free utilities, no deposits required, etc. If you find a lot of concessions they are having trouble filling vacancies.
A word of caution on real estate “market research”. It is critical to drill down to submarkets when doing your research.
Free apartment market research reports
There are some good resources online for free local apartment market data. Multi family lenders such as Red Capital Group offer free research reports and commercial real estate valuation firms such as Integra Realty Resources also have free reports on local and national apartment markets (download the IRR Viewpoint). This is a really good report.
They may be free, but they are full of valuable information.
You’ll also find free local and national apartment market reports at most large commercial real estate brokerages firms such as Marcus & Millichap, Grubb & Ellis, and CB Richard Ellis.
All of these reports include information on cap rates, vacancy rates, employment, construction & apartment unit inventory, housing & demographics, rents & capital markets (and more).
The grass isn’t always greener
Keep the following in the mind:
Many real estate brokers and commercial firms do not tell you the whole truth. They will try to paint the prettiest picture possible about their market and their properties. They’ll list properties with inflated prices. They mislead about markets. They will try to sell properties on pro formas (financials that do not exist today but might exist in perfect conditions). So, verify your information from multiple sources.
There are exceptions, but I’ve found few.
It’s worth checking out LoopNet while doing your research. This is the biggest online resource for apartment building listings — kind of like the MLS for single-family properties. But, again, most of the info is inflated as it is coming from the listing brokers or the property owners.
I’m not saying do not hire a local commercial real estate broker. I work with a guy I love. But as an entrepreneur and real estate investor you need to lead your team. In order to do that you need to know and study your business.
Which leads me to my next tip…
Learn about apartment investing BEFORE you buy a property
Before buying your first property, educate yourself on buying apartment buildings.
I read everything I can on multifamily investing. Books, magazines, articles online — and, there’s a lot of free stuff available.
Apartment Finance Today is one of my favorite (free!) magazines. This publication can keep you current on the financial markets. Multi-housing News is a magazine that covers markets, trends, finance, credit and other areas of interest to multi-family investors.
Both of these magazines are free and can be delivered to your door or read online.
Steve Berges is an author I’ve found who is pretty straightforward about investing in apartment buildings. His book The Complete Guide to Buying and Selling Apartment Buildings is worth checking out. (Of course you’ll definitely want to sign up for advance notice of my book!)
I realize this is a lot of information that asks you to do a lot of independent research. If you want to be successful in any business you should understand it.
Remember,
“Doing nothing is not a successful strategy!”.
And, where else can you get a group of people together to pay for your investment while providing them with a wonderful living environment at the same time? It’s why I love multifamily investing.
I hope this post has inspired you to invest in apartment buildings of any size. If you’re interested in learning more, be sure to get advance notice of my upcoming book, Investing In Apartment Buildings: Forcing Appreciation On Multifamily Properties Using A Value Added Strategy! (Click the link.)
Oh! And be sure to hop over to my mentoring page for more real estate investing resources: Apartment Investing Mentoring
Or, leave a comment below!
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{ 8 comments… read them below or add one }
Just wanted to say thanks for this post, some realy good info here. I’m just getting started investing in multifamily real estate and since I’m on an extremely limited budget I need ALL the free info I can get, can’t afford one of those courses, kits, books, systems, or boot camps all the gurus and infoprenures are selling. Like you said however there’s lots of free info out on the internet, it just takes a whole lot of time and patience to find it. Figuring out what ya have to look for/learn in the first place, not just the generalities but the specifics, of exactly step by step ‘ what to ‘ and ‘ how to ‘ for free…. Not so easy. One little piece here another there, ya just have to wade through the garbage and put up with all the sales pitches to get it. None of that in this post,just plain good advice and solid info as well. Thanks again, another little piece for me !
Hi Michael,
Thanks for your comment and congratulations on your decision to invest in multifamily real estate. I think it’s great that you are on the internet seeking education for this real estate niche market and I’m glad I could help. Have you connected with anyone with experience in this area by way of a mentor or a group of like minded investors? I’ve posted numerous articles on this blog about finding a mentor and also about forming mastermind groups — both could be a tremendous asset to you as you get started.
Thanks again for your comment and best wishes to you.
Theresa
Wow this is an amazing article!!! Great information! I’m 29 and looking to invest in my first apartment building but I have no money and bad credit. I lost my job and foreclosed on my house. I would greatly appreciate it if you can give me some ideas on how to buy an apartment buidling with no money down. Thank you!
Hi there Elyas,
Thanks for stopping by, great to connect! Good move going into the multifamily real estate niche. There are a lot of creative ways to purchase real estate with no money down. Here’s some ideas — borrowed from an earlier post on The Art of Creativity in Business — that can help get you started:
“Change your question.
You need money to grow your business (buy real estate)?
Don’t ask, “Who’s going to lend me money?”… the bank? My family?
Change your question to, “What are different sources of capital?”
The possibilities are endless. Leverage from collateral. Other people’s credit. Creative debt such as capital in exchange for equity. Time or labor in lieu of cash. Collaborative opportunities. Overlooked assets.”
Think about each of these possibilities and brainstorm with some friends. I’d love to hear your ideas!
My best wishes to you.
Theresa Bradley-Banta
Hi Theresa,
Thank you for directing me to this post. I love the wealth of resources you provided. Gonna check some of that stuff for sure. I’m ready to buy commercial apt bldg yesterday. I’m bookmarking your post in my new apt bldng folder!
Derek Potocki recently posted..One Thing I Learned From Elvis
My pleasure! You’ll be adding to that apartment folder for sure. btw – when I said forget about LoopNet I should qualify that. It’s a good research tool. But nothing like sourcing your own deals:)
T
Hi Theresa, great information about researching the internet for free information and doing your own due diligence, I own single family real estate, but my desire is to own a 50 unit apartment building, so your site is right on time for me. I have invested so much money into these real estate courses and none have bought me good success, so i think i have to do it on my own, thanks for your insight and resources.
sandra
Hi Theresa, My wife and I own a couple of income homes but are trying to purchase an exceptional 7 unit building with exceptional cash flow and a good projected future upside in a super location, location, location, ! We are having a very hard time finding financing in this price range which is 350K. It falls below many of the 500k minimum limits for commercial lenders and above the number of units for local lending banks that do residential or only up to 4 units. We do have this under contract and are running out of time fast, if you have any contacts or scuggestions you could em to us we would truly appreciate it!
Thank you for your input and or assistance.
Scott & Lois