How To Buy An Apartment Complex
on November 10th, 2009
How in the world did I come up with the idea of buying an apartment complex? Well I consider myself an opportunist. If a good opportunity presents itself I will consider making an investment. It doesn’t just have to be real estate. If I come across a huge invetory of products at a steep discount I might consider purchasing it. If a business pops up for sale that I think I can turn around and sell down the road for a nice profit I would highly consider it. I have gotten into the habit of browsing the business section on craiglist lately. I go off into tangents when I don’t have any real estate deals happening. As an investor if you aren’t putting your time or money to work you are losing money. When I don’t have any deals taking place I often look for other deals outside of my main money niche. So this brings us to craigslist. I like to puruse through there seeing if anything strikes my fancy. For example a Quiznos popped up the other day that the owner was only asking 44k. I contacted him and he seemed responsive but all the sudden fell off the planet earth. Who knows if he was serious but for 44k it sounded like a good idea.
Alright back to my point at hand. I was browsing CL and I stumbled upon an apartment complex. It was about 80 doors and they were only asking around 800k. Without any other knowledge this just seemed like an amazing deal. Usually when you have little to go on other than those two figures in real estate there is a catch. Usually the catch is something like the property needs an insane amount of work, or it backs up to a railroad track, or it is next to a crack house, etc.
Now before coming across this I have never considered buying an apartment complex. The thought has seriously never once crossed my mind. I do a certain type of investing because it suits me. I don’t have to deal with anyone, heck I don’t even deal with the end buyer. I just list the house on MLS and have a buyer’s agent locate the buyer. In my entire real estate investing career and even dating back to years before I got started when I tried to get started I never liked the idea of being a landlord. I despise the thought of it really. Hence the reason I have never thought of buying an apartment complex let alone a single family house to rent. There was something about that apartment deal that changed my outlook. That one thing that changed it was something we call Money. It just started racing through my head. I could just see these piles of money floating out of the sky. I wanted it.
I start looking into this deal and running numbers. What is 80 times $500 a month? Ok that number comes out to 40k a month in revenue. How much would a loan be on 800k at 7% interest? Ok that number comes out to 5k. WTF am I missing something? This deal is a no brainer in the making. And here begins the wonderful journey into learning everything there is to know about apartments and investing in them.
When I got started in real estate I had time on my side. I got the bug and knew I wanted to flip houses. I had half-heartidly tried to get into investing a few years prior to when I finally did enter the market. I didn’t really try very hard and I guess just didn’t have a huge interest in it. It was the reason I didn’t pull the trigger. Fast forward though and this time I had an interest. I was blowing through my savings. I had lived the previous two years just living it up without any income. It was a great lifestyle one I highly recommend if you have the ability. Two things rapidly changed this scenario for me though. I loaned out 30k to a family member and I invested another 25k into a business venture. Bam there goes 55k at the drop of a hat. I was quickly depleting my life savings and had no choice but to replace living off savings with an actual income.
I got the bright idea that I would buy a condo and it would cost the same as my rent was costing. I would find a good deal on that condo and it would be my first chance to get into real estate. I came across a condo that I thought was a very nice deal. Hindsite tells me it was actually a horrible deal and I would have lost a ton of money on it. Thank goodness I didn’t buy that money pit. I did however quicky buy two single family homes with a partner and it was the start of a beautiful relationship with real estate.
See what I said about tangents. I swear the older I get the more ADD I get. It seems to be getting bad these days even though I never remember having it up until just recently within the last couple months. Alright so with all that time on my side I studied my butt off. I learned all you could by reading. There is only so much education you can get from reading though. The way I can describe it is like this. You can read all you want about investing and you will probably get a high school education. You will get your undergrad degree from doing your first deal. That is how important it is to actually go get a deal under your belt. This is when you really learn about investing in real estate.
I have no doubt buying an apartment complex will be much the same. The only difference is I am finding it very difficult to find great information on buying apartment complexes. I went to the bookstore today. There must have been 200 books on investing in houses. There was “ONE” book on investing in apartments. And I have to tell you I sat there for 30 minutes and read most of that book. I learned very little from it and while I felt a bit guilty for sitting there reading it I was happy I did not purchase it.
It is good and bad that there is little information on apartments. The bad side is it will be harder for me to learn what I need in order to make a purchase. The good side is the entry level is much harder for your average person. This means that there is more than likely less competition going after deals. So in theory if I work hard I should be able to find really good deals.
Alright so as I investigate into this apartment deal further I quickly realize it is already under contract. This guy just posted it on CL and it was already under contract? This greatly annoyed me as the guy was clearly just trying to drum up a buyer list or something. I did however learn that this apartment was vacant and boarded up. So I am guessing not only was it 800k to purchase you were probably going to have another $500,000 to $1,000,000 in additional investments repairing the place and bringing it back to life. Then you have the duty of leasing all the units. This could probably still be a good deal and something you might make a small foture on if you do it properly.
That was probably a few weeks ago when I came across that and I have studied a lot since then. I need to start a plan and put it into action in order to move forward. I will talk more about that later.
