I’ve Paid For This Twice Already…

Frugal living and debt reduction tips for a better financial future. This is one family’s story.

September 4th, 2013

Have you Considered Investing in an Apartment Building?

Part of being a responsible adult is planning for the future. Most of my family’s plans for the future have been based on getting out of debt now and setting up our retirement savings. If you’ve been following my blog, you know that we have been making changes to our 401K and investments since 2008. Just click on the category links for “Retirement” and “Wise Investing Made Simple” to read my older posts, such as “Choosing the Best Investment Strategies” that I wrote about a year ago.

Once we’ve started on the basics of planning for retirement, we are ready for the next step, checking out the different investment opportunities. Today’s financial marketplace has many different ways to earn a good return on investments, including:

life insurance,
mutual funds,
bonds,
trusts, and
real estate.

We have been particularly interested in commercial real estate, which can be anything from buying or building a small strip shopping center, an office building or multi-family properties.

The U.S. economy is slowly recovering and this has signaled changes in the banking and mortgage industries. Record low interest rates on loans for real estate are starting to rise, and demand for rental housing continues to grow. Even the Federal Government’s web site for FreddieMac mortgages endorses buying apartment buildings in most metropolitan areas as a good investment. Established in 1970, Freddie Mac makes mortgages possible for one in four home buyers and is one of the largest sources of financing for multifamily housing. Their website shares a wealth of information on investing in apartments, including information about qualifying for their loans, market insights and checklists.

Digging into more information on investing in apartment buildings, I’ve found advice from many sources and have learned a lot already. Successful investing in commercial real estate, and especially multi-family properties, depends upon three things:

Finding The Right Property
The Right Location
The Right Financials

Finding the right property is the most time consuming and challenging part, but some people consider it the most fun. You get to meet many different professionals, from commercial real estate brokers to property management companies, appraisers, insurance agents, attorneys and mortgage brokers.

We will start our search for the right property by conducting an overview of the existing market and property owners. Companies that are proven successful in owning and managing apartment buildings, such as Post Brothers in the Philadelphia area, can be good role models but might also be good candidates for considering a purchase offer. I found their story intriguing, starting with the fact that their company really was founded by and is run by two brothers.

Post Brothers Apartments is a good example of a company which manages properties and their web site describes how each one was selected and is maintained on certain criteria, such as:

strength of community
tenant focus
local resources/neighborhood
green initiatives and eco-friendly
accessibility to transportation options

As an investor, I would mirror the Post Brothers business model and task my commercial real estate broker with finding properties like theirs to tour as a good investment prospect. I especially like the many steps they have taken to be green, such as all Energy Star appliances in each unit, and meters so tenants can see for themselves have much energy they use.

Then it all comes down to the financials. If you like the property and believe it can make money for you without requiring a lot of additional capital investment, the next step is to prepare and submit a Letter of Intent (LOI) to gain access to the property’s financial and records. If everything checks out, making an offer to purchase puts you on the path to a multi-family property owner!

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