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Are Apartments Really Commercial Properties?

November 23, 2015 by Dave Lindahl Leave a Comment

If you ask any banker, he’ll tell you that anything over 4 units is considered a commercial property. If you ask any municipality regarding their trash pick up, you’ll get the same answer, ditto with insurance companies but are apartments really commercial properties?

When you think of commercial property, do you think of tall skyscrapers, office buildings and warehouses…and possible large apartment complexes?

Well, apartments over 4 units are commercial properties but there is one big difference between apartments and offices. Residents occupy one space and the other spaces are occupied by businesses.

That’s a big difference! Did you know the 3 out of 4 businesses go out of business after the first year? Ninety percent are out of business by year five! If your renting to businesses, chances are, your turnover rate is going to be higher than a residential property and you should know that tenant turnover is your biggest expense in any multi-unit property.

People always need a roof over their head. If they move out of your place, they are moving into someone else’s (if you treat them with respect, they will stay longer!) Businesses just disappear and when they break the lease, it’s hard to get money out of a bankrupt company!

A lot of commercial properties rely on 3 or 4 big tenants. If they lose a tenant, they’ve lost 25% of the income. If the property cost you $1,000,000 and you lose 25% of your occupancy, you could be at a break-even point or worse…upside down.

Statistics show that it takes an average of six months to fill a commercial space. The main reason is that the pool of potential renters is not that big. In contrast, with a residential property, there is a vast pool of potential renters and the turnaround is one or two months instead of six.

For the same million dollars, you could get a 20 – 60 unit property (depending on where you invest), if you had 20 units and lost one, you’ve only lost 1/20^th of your rent, you still have plenty of cash flow and more importantly, plenty of spend able income.

There is one other thing you should consider, when you’re attracting a commercial tenant for your property, you usually agree to do a “build-out” which means you change the space to make it conform to the business. This could cost you thousands of dollars.

With an apartment unit, the “make ready” usually consist of paint and carpet. If more is needed, it’s usually paid for from the previous tenants security deposit.

Yes, apartments over four units are considered commercial properties but as you can see, they are in a class by themselves when you compare risk versus reward.

Why Invest in Apartment Buildings?

November 23, 2015 by Dave Lindahl Leave a Comment

Now is a great time to purchase real estate! Let’s face it; we are now living in a buyers market. With more and more properties on the market, sellers are facing some stiff competition, and are being forced to lower their prices in order to contend with other hungry sellers. This leaves ambitious buyers with a great opportunity, however, while timing could not be more perfect to buy your first piece of real estate, it is vital to know what kind of property is going to best maximize your profits. After all, the goal ofinvesting in real estate is making as much money as possible, while spending little.

When most people think about investing in real estate, the first thing that comes to their mind is duplexes and single-family homes. This is because many people are under the false impression that certain money saving strategies like fix and flip, and no money down is only available when buying single-family units. In fact, these same options are available when purchasing multi-family units like apartment buildings. In reality, purchasing an apartment building is often the smarter, and most cost effective choice. An apartment building can be easier to occupy, less time consuming, and can also be the most efficient way to maximize your profit.

With the demand for houses increasing in today’s buyers market, developers are continuing to build more homes. As we all know “demand” gives these developers the power to price these new properties as they see fit, and that price is more than likely going to be high, however, many people cannot afford to pay the $1,200.00 mortgage that comes along with the increased price of the home and look to a more affordable way to live. In this case, apartments, with their lower monthly rent, become more appealing to buyers.

Lets not forget, that the potential for increased demand in these apartments, can increase the cost of rent, because with even with an increase in the amount of rent that needs to be paid per month, the gap between mortgage payments and rent is still quite large, leaving apartment buildings as the more affordable option. Don’t forget, though, that many people are still caught in the intrigue of owning their own home, and while an apartment can be appealing to a younger crowd, they are not as appealing to those looking to raise a family, or to start their new married life. This in itself is advantageous to you as well as a buyer because while many people are looking in the market for homes, you can be facing less competition in the apartment market.

When you invest in an apartment building, you have the ability to hire someone to manage the property for you. You, as owner of the property, can enjoy all of the benefits of owning the property, while others put in the effort and the work to keep it running effectively and smoothly. While hiring others to manage your property can help to save you time, the ease of having all of your units in one place can also be very efficient. When purchasing several one family units, your properties can be spread out in several different areas. Separate home leads to separate bills, mortgage statements, etc. You, as property owner, would have to spend a great deal of time traveling from property to property to ensure that everything is running as it should be. With an apartment building one stop can lead to all units.

When buying a home, owners’ expenses often include taxes, and insurance. These expenses do not cover any maintenance that may become necessary to the property or any other problems that may occur, which could make it necessary for the owner of a home to dig in to his own pocket in order to solve these problems as they arise. However, went renting an apartment building, the expense include maintenance of the property, utilities, management, taxes, and also insurance. This can make the cost per unit of the building less expensive for the owner, which makes owning an apartment building, once again, more cost effective.

Listed above are only a few reasons as to why it is a better deal as an investor to invest in an apartment building vs. a single-family unit. Investing takes a great amount of research, and I would expect you as a homebuyer to do your homework before going out and buying any property!

How Did They Do That: Omar Ruiz

November 23, 2015 by Dave Lindahl Leave a Comment

In this new episode of “How Did They Do That” David Lindahl catches up with Omar Ruiz from California on a 32-unit deal in Houston, TX that rewarded him with a $20,000 acquisition fee and almost $1,000 a month in cashflow! Omar talks about how he found the deal, what he did to raise $200,000 to close the deal, and has some useful advice for investors that are looking to do more deals in the future!