There are many different ways to invest money. You could buy stocks, purchase bonds, acquire foreign currency or bid on fine art. The deductibility of the home mortgage continues to make a real estate one of the most popular investments. Investment in real estate can take many forms. You can purchase a two family house or a condo or even a real estate fund such a REIT or real estate trust. Roughly two thirds of all Americans have chosen to invest in real estate in the form of a traditional single family home. In many areas of the country this investment has paid off handsomely as housing prices have vastly outpaced inflation.
Given the enormous returns that resulted from real estate appreciation, a significant number of people have sought to invest in other forms of real estate. A common first step is the purchase of rental housing. If you decide to buy an apartment building there are several factors you must consider. In the first place, think carefully about this decision. Owning an apartment building is not the same as owning a somewhat larger house. It’s an entirely different experience. Do not make it without careful consultation with a few professionals before you proceed.
Your primary consideration should always be the apartment building’s location. While it may be a clique, the often quoted idea that real estate is “location, location, location” also contains a great deal of truth. Locations can be characterized primarily in one of three ways. There are terrific neighborhoods, good neighborhoods and poor neighborhoods.
A terrific neighborhood usually has very good amenities such as schools with a low teacher to student ratio. This kind of location costs more but also allows you to charge more for rent. The building may appreciate faster because more people want to live there. But there are drawbacks. Richer neighborhoods attract buyers rather than renters so you may have a smaller tenant base. A good neighborhood is an excellent choice for the purchase of rental property. Rental housing is often plentiful and investors are welcomed by the community.
A bad neighborhood can be problematic because of higher crime rates and tenants who move more frequently. At the same time properly managed rental housing can be a large moneymaker in a poor neighborhood. Tenants appreciate the opportunity to live in a well run complex. Once you’ve decided where to buy an apartment building the next step is to decide how many units you prefer. Smaller buildings of no more than eight tenants are ideal for less experienced investors.
Before you buy, find out what type of zoning is allowed. Note whether the area is zoned for commercial use, mixed usage or only residential tenants. Mixed usage allows you more options. If the first floor is in noisy area that gets a lot of traffic, consider turning it into commercial space. A storeowner is likely to see that as an advantage rather than a problem.
Financing is another serious consideration. If you can’t pay cash you’ll have to take out a mortgage. Mortgage lenders typically charge higher interest rates for commercial real estate than for other types of housing. If you already own an apartment building and want to sell, there are a few things you should know before you decide. First of all try to figure out why you’re selling. If the answer is that you’re tired of dealing with tenants, consider hiring a rental property management company. For a small fee there are many companies that will handle all transactions.
If you’ve tried that and if it still isn’t working, or you’d just rather put your money elsewhere, then invest money in a few cosmetic changes before you begin. White paint is a good choice that doesn’t cost a lot but allows buyers to focus on their tastes rather than yours. If something minor is broken like a window or a door, fix it. Once you put the property on the market inform your tenants in advance. Decide if you want to show the property while the tenants are present or after their leases have expired. The former can cost you money in lost revenue, but buyers can be reluctant to purchase a property if they can’t see exactly what they’re getting in advance. Whether buying or selling don’t rush into a decision. An apartment building is not a penny stock.
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