When investing in apartments, you need to have the right strategies to make the most out of your investment. Otherwise, you could lose a lot of money. In apartment investing, you have two main strategies to choose from: shorter-term value-add strategy and the longer-term buy and hold strategy.
Investors who choose the shorter-term strategy purchase an apartment, flip it to increase its value, and re-sell the property for a profit within 1-5 years. On the other hand, long-term investors plan to keep the property for the long haul and enjoy the annual income it provides. After a few years, they may choose to sell the property or pass it to other family members.
However, first-time apartment investors tend to choose value-add strategies, and if you’re one of them, here are some important things to know.
For first-time apartment investors, the value-add strategy is popular. So, if you are thinking of taking this investment route, you can settle for physical upgrades or superior management. You can replace the management company, upgrade the units, increase the price of rent, and use other ways to cut costs and increase profitability.
Another value-add strategy you can use is to have tenants pay for the utilities, or a larger share of it. There are value-add opportunities you can get as well, such as new supplemental sources of income for your property, like vending machines, new parking spaces, etc.
On the other hand, if you want to take less intensive value-add methods, you may choose to self-fund the repairs.
Indeed, your apartment building’s location is crucial to your success, especially if you want to get the shorter-term value-add investment route. You need to be confident about the location you choose, but you need to be familiar with the area before you do so.
You need to consider some important area information: the employment and economic data, economic health of local employers, crime and safety data, and population and population growth trends.
Another important thing is for the property to become profitable, which means you need to look towards the market where values are likely to grow significantly over your expected holding period. While it’s really impossible to predict the future, you can still make a series of educated market assumptions.
You can also consider investing in a property near your current home. Although this isn’t the best idea, it’s still an idea worth exploring. For one, you are already familiar with the local market, which means that you already know things that other investors don’t. Moreover, it will be easier for you to monitor the property because you live close to it.
Investing in apartment buildings isn’t the easiest thing to do, especially if it’s your first time. As an investor, you want to make sure you’re making the right investment and decisions. If you’re new to this, it’s crucial to have a professional guide you through the process, which is why you should consider working with a commercial real estate broker to help you out.
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