Looking For Value: How to Find a Good Deal on an Apartment Complex — Steven Taylor
When looking for a good deal on an apartment complex, you should be looking at a variety of factors to determine value. Value isn’t simply about a building’s cost — a good deal is determined by cash flow, equity, appreciation, risk, and other qualities. As you look at properties, think of yourself as an investigator. Has the building been previously mismanaged? Is the property under physical stress? Is the apartment complex in foreclosure? Take the time to gather all of the facts available to you. As you gain experience, your knowledge and instincts to spot a good deal will improve. But it is essential to take time to research all sides of a deal to determine whether an apartment complex is a sound investment.
Wondering how to find a good deal on an apartment complex? I always consider these three elements when looking for value.
1. Consider the Equity
When looking for value in an apartment complex, you’ll need to understand if the property you are considering holds significant equity. If the complex you are looking at purchasing doesn’t already hold equity, will you be able to find ways to create it? There are several different forms that equity can take: foreclosure, a discounted listing, poor management, a rezoning opportunity, fixer-uppers, or other factors that motivate sellers. You can almost always find a way to create equity, but you’ll experience further benefits, and better deals, if you can buy into it.
2. Examine the Probability of Cash Flow
Cash flow is a factor you should always consider when looking at apartment complexes. To succeed, your building will need to be able to generate income. You’ll want to compare the property you are interested in purchasing to other properties in the area to evaluate its potential. Start by determining the strength of the market for rentals in the vicinity. Research the type of market you are buying into. Different markets may have higher turnover rates, or require more upgrading. Consider the financing options. How much is the interest? Will you be able to put any cash down? The type of loan you are able to secure will impact your cash flow as well. Determining the probability that your investment will be able to consistently generate income is a crucial step in finding the right deal.
3. Consider the Risk of being a Landlord
When looking for the potential value in an apartment complex, you should also be looking for the potential risk of being a landlord. Unfortunately, risk will always be a factor when buying a property, even if you have done thorough research and made an educated decision. No matter how much work you do on the back end, there are aspects of real estate that just come down to chance — you could purchase wisely and still be in the wrong place at the wrong time.
When taking on an investment, you should always be prepared with a plan B. Do you have a backup plan for gaining positive cash flow? Will you be able to balance in the case of high vacancies? Part of finding a good deal on an apartment complex is being ready for anything. It is essential to have developed a game plan in case things don’t go you way. Your research on a building’s equity and probability of cash flow can help you design a flexible strategy for success. In real estate, it is a balance of strategy and adaptability that will lead you to prosperity. — Steven Taylor
