Apartment building questions

Apartment building questions

Investor · Mancelona, MI · Member since 2019 · 43 posts · 24 votes

Ok, I'm newish to the scene (4 single family, 1 multi) and have done the fix and flip to the point where I could build my own house at this point quite easily. I'd like to start branching off into the apartment building scene as it seems like the logical next step. I mainly have just been going the BRRR route so far.

So being new to this, I have a couple of questions since they fall into the commercial zone. 

1.   What's the top things to remember when buying one of these?   Square footage affecting price?  Utility that makes a huge difference when buying ie. sewer or something expensive if it's bad.     

2. Is there such a thing as DSCR loans or is that only smaller buildings. What type is usually used or do most people just cash buy these?

3.  Are sellers usually just trying to cash in or are they retiring?   I see no real good reason why anyone would want to sell one of these so I was curious mostly about that.   My area is a resort area so it's a concern.  

4.  Building vs buying existing?  Seems building would be pricey, but buying existing seems like it might land you in a position where the rents can't cover the new mortgage and costs due to what they want for them.  

5.  Can you 1031 duplexes into these or is it not enough of a "like" property?

6.  Better to just buy some storage units, RV park, or something like straight to pure commercial, strip mall etc.  

I'm pretty comfortable buying houses, but these fall under some different rules.  I'm just seeing what those rules are.   Any other thoughts are welcome.  

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    3y

    This is a broad swath of questions so I'll answer some of them.

    2) Apartments are valued on the income approach, not sales comps. Effectively, every loan is the equivalent of a DSCR loan. The income determines the size of the loan you can obtain.

    3) I've never bought an apartment from someone retiring.  Typically, it is because their business plan has run its course.  The slum-lord types who squeeze every penny out of the property eventually reach a point where the property requires a huge investment so they sell.  For those that buy value-add properties, they bring that pile of cash to fix up the property and drive property income higher.  Once the valuation is high, you can get your cash out by refinancing or selling.  If you want to move up to a larger property, the best way is to sell because you have a bigger war chest

    5) There is no property unit count or type restriction to execute a 1031 exchange in real estate.

    6) There are many types of real estate in which you can make money.  You will make more money in any specific one of them if you become an expert in evaluating and operating that type.  I like apartments simply because everyone needs a place to sleep, so they will do well in times of crisis, but in a huge downturn the RV Park, for example, might not do as well.

  • Investor · Mancelona, MI · Member since 2019 · 43 posts · 24 votes
    3y

    Thanks so much for the answers.  That pretty much cleared up the majority of what I was wondering.  

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