So the question is, how do you go about purchasing an apartment building as an investment property? We're here to help, take a look at the example below. Here's an example of an apartment complex purchased as an investment property.
Location: The Park Terrace Apartments on 1531 W. Rialto Ave, Fontana, Arizona 92335.
Down payment: $1,712,632
Assume existing loan of: $3,937,368 fixed rate 1st trust deed & note, due 10/10, at 5.75% interest, $23,074 per month, 1 point assumption fee
Gross Scheduled Rental Income: $48,080/monthly $576,960 Annually
Allowance for Vacancies & Credit Losses: (5%) $28,848
Gross Scheduled Income: $548,112
Operating Expense allowance: (34%) $188,724
Net Operating Income Estimates: $359,388
Upside/Market Rent Data 46 2/2’s @ $950/ $43,700
4 1/1’s @ $ 895/month: $3,580
Laundry Income/month: $800
Total Market Rent: $48,080/ $476,960 year
Market Rent GRM (Gross Rent Multiplier): 10.83 x Gross
Market Rent Capitalization: (Cap Rate): 5.75%
$359,388/$6,250,000 = 5.75%
Remember: Loans for apartment buildings are gauged more on the cash flow potential or earnings potential of the property, and less on your financial status. Of course, your on credit report is crucial, but the loan is weighted more in terms of how much revenue the property can generate.
Things to factor in and consider when buying an apartment building:
- Multi-unit building of generally four or more—requires a property manager (this could just be a tenant living in the building you handles any repairs or minor problems)
Extras: Don't know if going the Seinfeld route, a la Krammer, and placing pictures of all the tenants in the foyer is the way to build a sense of community, but keeping a clean and well landscaped area will inspire tenants to take care of their apartments and the buildings surroundings. They'll respect and take care of the property if you do.
Another way to build a community feel, probably the better route than photos of each tenant, is to give out a referral bonus if one of your tenants refers a friend or someone they know and they become a tenant.
This is not joke though, increasingly the community feel is becoming more real, even if it's an online group that enables tenants to communicate with one and another and make decisions about what's needed in the building.
Remember: Timing the purchase of the property so you're getting all the rent money - so the beginning of the month, that way you can use that money right away for repairs or closing costs