I’ve found that a lot of really successful residential real estate investors never even think about getting into commercial real estate.
I think one of the biggest reasons is that they’re intimidated; most think they don’t have the expertise or capital necessary to get into the game.
I know, because I was once amongst them myself.
At Lee Equities, we’re in the midst of transitioning into the apartment sector right now.
Over time, I’ve learned that apartment investing isn’t any harder than residential is. Sure, there’s more to consider, but that doesn’t mean it’s necessarily “harder”, per se.
So in case you’d like to get into apartments, today I’m going to share some of the things I’ve learned that might make the idea of investing in apartments a little less intimidating for you.
1. Seek Education
Seeking education was the main way I was able to build my confidence in dealing with apartments.
I’ve found that learning about something I’m intimidated by helps me gain confidence and overcome the doubt in my mind.
I encourage you to embrace that philosophy.
There’s all kinds of free resources on YouTube and the Internet that you can use to learn about what you don’t know.
To be honest, the bulk of the strategies we use in our business came from stuff I learned online for free.
They say that when the student is ready, the teacher will appear.
Well if you’re ready to take your business to the next level, the free resources on the Internet are ready to teach you
what you need to know.
2. Same Effort, More Money.
Can I ask you a dumb question?
If you could get paid more for the same work, would you be interested?
Dumb question, right?
My point is that it doesn’t require that much more work to do an apartment deal than it does for residential.
I’m not saying it’s “easier,” I’m just saying it doesn’t require that much more work on your behalf.
If anything they normally take longer to close than residential deals.
For example, when it comes to finding motivated sellers and cash buyers from a wholesaling perspective, it’s the exact same work required for both markets.
Just like with residential, a lot of the property analysis can take place in the comfort of your own home or home office.
With apartments, it’s all about the numbers. And you can do the numbers from home.
If the numbers don’t work, you can just move on to the next one.
It doesn’t take long to sniff out a good deal if you know what to look for.
Getting Pictures of the Property
And just like residential, you can pull up the property on Google to get an idea of the area around the property as well as what the property looks like without even leaving your house.
Bottom line, if you can do residential, you can do commercial.
3. No Money? No Problem.
Not having the money to buy an apartment is no excuse to not get involved.
If you’re willing to put the work in and provide real quality service to your customers, you can get started with apartments by wholesaling them.
And that requires next to nothing out of your pocket.
Plus, you get to learn how to find and identify good properties while you build your wholesaling business.
So once you’ve saved-up some cash from your wholesaling, you’ll have the money “and” the knowledge to buy and hold your own properties, if you want.
4. Importance of Cap Rate
The cap rate is super-duper important when you’re dealing with apartments.
The cap rate is the ratio of the Net Operating Income, which is how much the property brings in after expenses, divided by the price of the property.
The higher the cap rate, the more cash flow you’re going to get for the price of the property.
Calculate it Carefully
It’s crucial that you calculate the cap rate correctly. If you don’t, you might miss out on a good deal.
Or even worse, you could think a deal is solid, when it really isn’t.
So you really have to make sure you gather all of the sources of income for that property, and all of the liabilities, like the vacancy factor, and whatever other expenses the property has.
The going cap rates for different classes of properties vary from market to market, and from location-to-location.
10 percent tends to be a rule of thumb threshold in the industry though, when it comes to measuring a properties performance.
Well I’ve ran my mouth enough today, click here for part two. Talk soon.
Do you invest in apartment buildings? Why or why not? Leave a comment.