There are numerous considerations involved when buying commercial apartment buildings, but the primary consideration is to find one that is profitable. While this may sound like a no-brainer, too many investors fail to realize the cost of apartment ownership is affected by the rent income not meeting the expenses of the property. Calculating the cost of the down payment, monthly payments for principal and interest and maintenance are only part of the calculation to determine if the property is profitable at the asking price.
Many first-time investors look only at the prospect of simply raising the rent to make up the difference but fail to consider if the current tenants will accept this increase by a new owner. Before heading into the financial marketplace, the investor will need to consider all of the variables in the cost of ownership before seeking financing.
Nearly every commercial lender will require 20 percent involvement by any new owner and most experienced investors will have the liquid assets to take advantage of a good real estate deal.
If the prospective investor is planning to buy an apartment building and undertake a major reconstruction project to improve its value, there will be a whole new set of requirements by the bank, along with a lot of extra paperwork before the lender will consider approving the loan. However, consider the bank has approved the loan on the pretext the buyer can come up with the required 20 percent down payment.
No Money Down Apartment Building Buying Strategies Explained
Unfortunately, many new apartment building buyers are unaware of the creative financing possibilities that will allow for the purchase of an apartment complex with no money down. It is possible to take ownership of many rental apartments without having the entire 20 percent coming from the new buyer.
There are some options available when it comes to raising the capital needed to make this type investment, but remember the 20 percent down will be based on the purchase price and not what the property is worth or what the new buyer claims it to be worth.
Some of the options include borrowing money from friends and family to come up with the required cash, seek the help of the current owner to back the needed money for the down payment or form a limited partnership, offering shares in the rental property to those willing to invest in the purchase.
The first two options are somewhat self-explanatory, as borrowing from friends, family to the current owner will usually involve specific monthly payments, akin to taking out a second mortgage to pay the down payment, while a limited partnership can raise the money without giving up total control of the unit.
Using a Limited Partnership to Buy Apartment Buildings with No Money Out of Your Pocket
It is recommended that any partnership agreement be forged by an experienced real estate attorney to insure the investors are protected and that the agreement meets all state and federal laws surrounding such agreements. One general partner, who will have some executive powers over the state of the property and any decisions pertaining to its operation, will need to be in place. Other limited partnerships can be sold to other investors and, based on the percentage of their investment, can receive a return on their investment either on a monthly basis, paid from the cash flow of the building, or held until the property is sold at a later date, repaid an amount based on the profit of the
If you are looking to expand your investment portfolio and you would like to learn more about the many benefits of an apartment building investment then I suggest that you read my free mini course on apartment building investments that can be found at Apartment Building Investor
If you are really serious about learning exactly how to find, buy and manage very profitable apartment buildings then you must enroll as a student in my Buy Your First Apartment Building E-Course