Why Apartments?
You're going to hear plenty of reasons over the next few weeks. I'll start with risk. Investing in apartment buildings is relatively low risk compared to residential investing, not to mention other investment alternatives. Depending on the geographic region you're in, a typical 3-4 bedroom home worth $250,000 will rent somewhere in the neighborhood of $2,500 a month. In some upscale areas, you might get more, but the home will cost more as well. When you invest in a similarly priced apartment building-say 6 units for arguments sake-the rents range from $350-$1,200 per month, depending on location, unit mix, amenities and the like. If your tenant moves out of your home, all cash flow is immediately gone until a new tenant is found. If a resident moves out of your apartment, you still have 5 other units rented. Again, you'll receive a few emails in the coming weeks detailing other great reasons to invest in apartment buildings.
How Much Money Do I Need?
NONE! That's right, none! Most people believe you need 20%-40% to put down on an apartment building to buy it. That's okay. We'll let them keep thinking that! There are ways to do it. I teach students to invest in apartments a variety of ways. If you get a conventional loan, plan on puttind down between 20%-40%, depending on location. That doesn't mean it's your money, however. I teach students how to raise money from private lenders. There are even ways to buy apartments with little or no money without using other people's money!
So how much money do you need to get started? That depends on your knowledge. When you know what to do and how to do it, ZERO!
What About Loan Qualification?
It use to be that the building qualified for the loan and your personal credit, employment, and financial statement meant next to nothing. That's started to change as the financial crisis has deepened. But don't let it stop you. It's still easier to get a loan on a commercial property than it is a single family home. And although most lenders require you to personally guarantee the loan, they won't fund it unless the property generates sufficient income to support expenses and the debt.
It's also important to note that sellers are becoming more creative. Wealthy individuals realize real estate investors are finding it difficult to secure financing from conventional lenders, so private lenders are even easier to find.
I Don't Know Anything About Property Management.
While I don't recommend you manage property, it will be helpful to know a little bit about it. Some investors prefer to manage their investments and I suppose there's more than one way to skin a cat. I personally prefer to turn the management responsibilities over to a property management company and spend my time looking for more properties to make me even more money, but to each their own.
Generally speaking, apartment buildings consisting of 20 units or more will support the cost of an onsite manager as well as a professional management compnay, depending on the geographic region the property is located in. Smaller properties won't usually support a management company and the quality of your onsite manager is rarely top notch. Larger buildings generate the income you want to hire the help you need.
I Don't Know How to Analyze Apartments.
Many real estate investors are slow to "graduate" to apartment buildings because they don't know or understand the numbers. Analyzing the income and expenses can sometimes be complex to beginners, but once you've done it a few times, it's really very easy. My students usually use a quick set-up sheet to quickly input income and expenses and, once the property warrants further review, they input the information into the Apartment Evaluator to thoroughly analyze the numbers. In addition, apartments differ from single family homes in that investors are given a due diligence period to review all the books, records, finances, physical inspection of the property and more before the make the decision to buy the property.
How Fast Can I Replace My Current Income?
That's really up to you. The good news is that investing in apartments is the fastest way to tell your boss to "take this job and shove it." You can even replace your current income on just one transaction. So, it could happen in just a few months. It really depends on the time and energy you spend in educating yourself.
Wish you all the success,
Steve Steadele
About Steve:
Steve Steadele, author of the book Multifamily Millionaire, is a successful Real Estate Investor, Broker, Entrepreneur and self-made millionaire. He is a featured speaker at Real Estate Investment Associations across the country where he shares his wealth of knowledge, experience and enthusiasm for the real estate industry. Today Steve specializes in the acquisition and disposition of investment real estate throughout the United States. To learn more about his products and services, visit his Web site at www.SteveSteadele.com.
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