There are basically three ways to invest in apartments:
1) Do It Yourself
2) REIT (Real Estate Investment Trust)
3) Partnership
Today I’m going to talk about Doing it yourself…
DO IT YOURSELF
Buying apartments on your own is for a much smaller number of people than you would think. Many people will attempt to buy a small apartment building, a duplex, triplex or fourplex. These are all mistakes. Small unit buildings and “plexes” will not have enough units to protect you against vacancy fluctuations, produce enough cash flow to cover issues or appreciate in value enough to be able to reinvest or compound your investment.
The mistakes you will make in real estate are not as obvious as you might think, and most all of them are made because people go it alone. However, the biggest mistake of all, is to never buy income producing real estate in the first place.
This is what you will need to do if you are going it alone:
1) Find a deal
2) Negotiate the terms
3) Set up an LLC
4) Get a loan
5) Close the deal
6) Find tenants
7) Turn units
8) Manage the property
9) Rehab the property
10) Provide reports to the bank
11) Take phone calls from existing and prospective tenants
12) Fix the property
Of all things on that list, the hardest part of investing in apartments isn’t the tenants, the termites, and the toilets, it’s in finding the right deal. Finding the deal (on-market or off-market) is the most difficult part of buying apartments. Sometimes just getting the seller or broker to take you seriously is difficult.
I remember when I told my Mom I was going to start buying apartments and she said to me, “People are going to be calling you at all times of the night.” I thought to myself, “No one is calling me; I am buying deals big enough whereby the property can afford a management team.”
On most of our properties, the tenants don’t know the names of our investors as the property is under an LLC ownership, not our personal names. When a tenant calls for assistance, he or she gets a well-paid manager who is trained on how to resolve the tenant’s issues.
No one calls me or the investors, because the property produces enough income to pay a great manager to deliver a great experience.
Finding deals would seem to be the easiest part when buying apartments, but in reality, finding the deal is the most difficult task of all. Remember this rule: if the deal is easy to get, it probably isn’t any good. And the more interest in the deal, the more value it will have to the next set of buyers.
I have bought deals before just because of the amount of interest, knowing I could sell it the next day if I wanted to. I recently bought a 500-unit deal for Rea Capital and within two months of closing I was offered an $11 million profit.
You want there to be competition on every deal you buy. I will even tell you this, having to pay more to get a deal is a good sign of the value of the deal. The old adage, “Buy low and sell high” sounds good, but it will not be your best strategy with apartments. Warren Buffet says, “Far better to buy a wonderful company at a fair price than buy a fair company at a wonderful price.”
For more information on the three ways to invest in apartments pick up my book,
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