Items to consider when buying an apartment building

[Thomas Beyer]

Complex problems have simple, easy-to-understand wrong answers ..



Buying a building is not that simple (i.e. price/door or CAP rate) as many factors have to be considered such as:



a) CAP rate

b) price/door

c) what is behind teh door i.e. condition of suite

d) what is in front of door, i.e. condition of common areas

e) rents today

f) immediate rental upside

g) long term rental upside

h) balconies ?

i) suite size or price per sq ft

j) views ?

k) macro-location, i.e. future of city/town

l) micro-location i.e. suburb

m) condition of major elements like roof, boiler, windows, balconies

n) interest rate on mortgages

o) cash per door i.e. cash-to-mortgage

p) availability of 1st and 2nd mortgage money

q) condo conversion abilities / potential

r) who pays utilities

s) potential future tax increases or decreases

t) ability to lower operating expenses

u) curb appeal

v) "feel" of suite / attractiveness

w) competition from new construction

x) competition from existing buildings

y) in-migration

z) new jobs coming (or leaving)



.. maybe I forgot 3 or 6 more ..



one of these elements overlooked .. and there goes $100,000 or $1M in potential profits !!

 

[RedlineBrett]

I'll add a few since I'm going through this right now



- Amount of due diligence required - can be a significant investment (30k+) that you have to walk away from

- condition and type of neighboring buildings (can affect environmental report)

- your own net worth! If you don't have a track record in multi fam you're going to have to show significant assets

- Payout penalties or ability to refinance mid term

- laundry facilities for tenants

- parking ratio

-financial obligations and returns for your investors (or yourself... or both!)



And I'm sure there are many more..

 

[markl]

Great lists guys thanks again