Things To Consider Before Investing In An Apartment Complex

It is straightforward to buy apartment complex as long as you have the requirements and money. After all, a lot of people have lived in apartments at some point in time. Buy the property and invest in capital expenses to maintain the property and so on. Despite the simplicity of investing in these types of properties, there are some important things to consider if you are an investor. Here are the top things to look for when investing in an apartment.

Market conditions

Before buying a property, you need to understand the current market conditions – both at a micro and macro level. At the macro level, you should understand where we are in the market cycle. Investors have the upper hand when the market is down while sellers can drive prices up when the market is up.

At the micro-level, it is important to consider the local conditions. Understand the local economical drivers that can provide property rental demand. Consider the location of the property.

Planned or comparable developments

No matter the asset class you are investing in, you need to evaluate your competitors. When it comes to investing in an apartment, this means doing your research to understand what other properties are nearby, their rents, their amenities and vacancy rates. You should see how the investment you are considering stacks up in comparison to others.

You need to go beyond the competition. Look into what other properties may be planned. This provides a great way to understand what competition you are likely to face after investing in a property from a commercial property buy sell platform.

The condition of the property

It is important to consider the condition of the property before buying. Are major systems such as plumbing, HVAC, roof or electrical in good condition? What life do these systems have? If critical building systems need immediate replacement or repair, the capex costs should be evaluated in conjunction with the buying price to understand the investment cost basis. Investors should also evaluate the general condition and aesthetics of the interior and exterior units of the property. Is there enough room to improve the units? This may be a great opportunity for value add investors. If you are looking to take a hands-off approach, you are better off purchasing a stabilized apartment in turnkey condition.

Consider the cash flow

Commercial properties are valued based on their potential to generate income. Understanding the cash flow of the property can help you back into the right buying price for the property. It helps investors identify various areas for improvement. E.g., if the cash flow seems to be low, you should understand why it is so.

Occupancy level

Before you buy apartment complex, it is important to understand that multifamily properties are considered stabilized when occupancy gets to 93-95%. You should therefore consider the occupancy level when looking at an apartment building. If there is more vacancy then you should understand why. Are the rents too high or is the property in a bad condition?