Are you a landlord, or looking to be one? Real estate can be a lucrative investment, and owning an apartment complex can be a rewarding experience. However, you need to be aware of some potential pitfalls before purchasing an apartment complex. You may have to fix problems caused by previous owners or make difficult decisions regarding tenants and their leases as well as the safety and maintenance of the entire complex. To better anticipate potential problems, keep six factors in mind when buying an apartment complex.
1- Maintenance Issues
Look through the property for maintenance concerns. You’ll be responsible for fixing them once you buy the apartment complex. Begin with the roof and go all the way down, around, and through the buildings. Check for exterior damage, problems with the plumbing and electricity, and cracks in the walls and ceilings. Also, look for any damage done to the floors, cabinets, doorways, community-use structures, and laundry rooms. Then check for problems with entryways and security setups.
2- Tenants Already Living in the Building
Tenants are your income. The number of tenants you have versus the number of empty apartments you need to fill can indicate a lot about potential problems you’ll likely face. You need to go through leases to determine what tenants are responsible for and what utilities building management is expected to handle. You also want to look at the demographics of the building. Is it a building for older people, college students, young families, or mostly a mix of different age groups? The demographics can help you predict a lot about potential safety issues and tenant expectations.
3- Compliance with Regulations
It is important to check whether the current owners follow state regulations. If they are not in compliance, you will be left to resolve the problems. This may mean disputes with tenants – current and former – and the city. Non-compliance probably also means there are who-knows-how-many maintenance problems that need to be fixed.
4- Contract Services
Check the contracts pertaining to services necessary for the upkeep of the entire apartment complex. This includes the following list that you should doublecheck before purchasing an apartment complex:
- Trash Collection
5- Economic Potential of the Community
You want to consider the health of the local economy. The state of the economy can help you predict turnover rates. Ideally, tenants will be happy in their apartments and want to stay for a long time. If things are really good, or bad, that might not be the case.
6- Crime Rates in the Neighborhood
Unfortunately, the crime rate is rarely considered when buying apartment buildings. Crime is a good indicator of significant structural and economic issues in the community. It influences the entire apartment complex including, of course, the tenants. Check what security measures the building has in place and review the impact crime has had on local businesses.
Before purchasing an apartment complex, you need to do your due diligence and research different factors to ensure you are making a smart investment.