Review of apartment investing plan

[Joe Sauers]

All,

I would like your feedback and comments on my business plan, which is to acquire small apartment buildings out of state. To start out, I currently own a duplex and a five unit multi family property, which I rehabbed, leased out, and currently self manage for the past 5 -7 years. I have been saving the cash flow from these properties, and am ready to invest in an additional property. (I also have about $100,000 of equity that I could extract from these properties if I chose to).

I am looking at small apartment complexes in New York, Ohio, and Texas, (to name a few) which seem to offer better returns than properties in my local market (Philadelphia). The properties I am looking at are 15-30 units, for $350,000 - $600,000, with actual cap rates of 10-13%, currently 90%+ occupied. I like the idea of more units for the money because it spreads out the risk of a few vacancies drastically affecting cash flow. My intentions are to hold these assets long term, build a rental portfolio for the passive income, which will allow me to continue my full time job and supplement my income. Providing this next property works out to plan, I would like to continue repeating the process as often as possible, approximately once per year.

I realize investing out of state will require the use of a property management company and travel expenses that come with that, which I will factor into my analysis.

I believe the biggest challenges will be:
1. Ensuring that I am investing in a good area
2. Traveling to the area to inspect the property, neighborhood, and management companies in person before purchasing
3. Finding a competent broker to represent me
4. Hiring the right property management company (not necessarily the cheapest).
5. Dealing with any major issues such as capital improvements, replacement of management company, etc.

So my questions to you are:
Any recommendatons on how to tackle my top 5 challenges listed?
What am I missing?
What do I need to tweak as part of my plan?
Why should I not pursue this business plan?
Anyone with experience doing anything similar?

I appreciate any feedback, good or bad. Thanks, Joe

[Gary E. London]

Hi Joe,

I'll offer some advice regarding your search for a property manager. You can always check with the Institute for Real Estate Management (I.R.E.M.). They can offer referrals for local property managers who are C.P.M. (Certified Property Manager) designated for larger apartment complexes of 50 units and above or A.R.M. (Accredited Residential Manager) for under 50 units. Look them up at www.IREM.org