Buy an Apartment Building Today?

In today’s turbulent financial markets many investors are looking for ways to grow their money that will offer a steady flow of predictable income and limited market risk. More and more people are buying apartment buildings to help diffuse the effects of inflation on their portfolios. Apartment buildings offer many exceptional advantages over traditional investments such as stocks, bonds and mutual funds. This is especially true in a recessionary market environment. In fact there are many attractive attributes of an apartment building investment that many investors who are new to commercial real estate may not even know about. There are some interesting facts about buy multi-family property investing that could radically change your perception about this fascinating and lucrative part of the investment world and inspire you to go out and buy an apartment building of your own.

Warren Buffet once said that “wide diversification is only required when investors do not understand what they are doing.” This quote seems especially true about the average investor in the United States who is listening to the advice of a financial adviser who in reality knows little more about the markets then himself. Usually financial advisers will recommend that a client be well diversified in investments ranging from stocks, bonds, mutual funds or maybe even a real estate investment trust. The adviser is putting his or her client into a group of “diversified” investments that were recommended by the firm’s top adviser and the research department. Unfortunately, however, for the individual investor is the fact that these investments are basically designed to preserve the firm’s capital under management and they don’t take into great regard the individual investor’s need to grow his capital.

The most successful investors and those that see the greatest returns are those that specialize in a particular sector. And the timing has never been better to begin specializing in apartment building investing for the average investor. The stock market is under intense earnings and inflation pressure. Investors need to look at a direct investment in an income producing apartment building to establish a profitable stream of cash flow that could last for decades to come. Many thousands of individual investors have been able to secure their financial futures by specializing in this unique niche and leaving behind the mediocrity of financial advisers and stock pickers.

If there has ever truly been a recession proof business it has to be apartment building investing. Even with the US economy is turmoil and business cutbacks people will always need a place to live. The actual demand for rental units in the US has never been higher then today. A total of 36 million of all households in the US are renter occupied. In total, a full 83% of all households under age 25 in the US are occupied by renters. Furthermore, a full 55% of all households between 25 and 35 are renters. The growing senior segment of society will be living longer and looking for rental properties as well. These are a few impressive statistics that demonstrate the strong current and projected demand for rental housing.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Buy an Apartment Building Today?

As I stress time and time again to new apartment building investors, before making an offer on any apartment building real estate property be sure that the investment will be a profitable one. Banks and commercial mortgage lenders will only lend money on an apartment building that has a Debt Service Coverage Ratio of at 1.2. Once the investor has done his or her work and found a profitable apartment building to purchase then the next step is to structure a offer.

The Offer Letter

The offer that the investor makes on an apartment building should be in the form of a typed letter detailing the terms and conditions under which the investor is offering to purchase the property. After the buyer has figured out the value of the property then he or should deduct around five percent off of that figure and make that the offer price. The investor should also make the offer contingent upon receiving financing, under specified terms, within 30 to 45 days for an amount of at least 75% of the purchase price. The buyer should also include an expiration date of one week on the offer during which time the seller can review the offer.

How to Make the Offer Stronger

1. Get a letter of interest from a commercial mortgage broker that simply states they are willing to lend 75% of the properties value. This letter of interest should not be confused with a commitment letter. The bank is under no obligation to lend the money if they decide to turn down the deal.
2. Put together a professional sales agreement in simple language that is fair to the buyer and seller. This will ensure that your letter is taken seriously.
3. Include any information that will make your offer appear stronger. If you have a lot of real estate investment experience, include your curriculum vitae. If you are going to pay your down payment with cash on hand then send a copy of your bank statement showing the cash.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Buy an Apartment Building — How to Structure Your Offer