Investing in real estate is a fantastic way of making money within a very short period of time. The main reason is the increasing demand in the industry and the security involved in such an investment. However, the process of making money through real estate is very complicated and demanding. I bet you have heard the misconception that real estate is too expensive several times in your lifetime. This is a statement made by people with little investment mindset or those that haven’t considered real estate as a full time investment.
If you observe this closely, you will notice that investment real estate is selling ridiculously valuations. Now have you tried to think about the best time to invest in real estate, I can tell you clearly that the more the expensive the real estate is the better the times of investing?
This brief will have a step by step guide on how buying apartment buildings and selling can help you create wealth. It is actually an easy thing that can help you make up to 80% return in less than three years.
The CAP rate
This is one of the most misunderstood concepts that make a huge difference in commercial real estate. It’s the concept that you should be well versed with before you jump in the real estate sector. Before we get there, let me start by saying that finding a viable property and negotiating the financing and the purchase will take a lot of your time and money. To make your hunt worthwhile, you should remember this one concept.
There’s this concept known as Capitalization rate or CAP rate that is found at the heart of every investment. This is in simple terms referred to as the building’s profit before taxes and the depreciation divided by the purchase price of the building.
This concept is very important for many reasons. First and foremost, all the rental property trades on this rate. For this reason, this is the first thing that a potential investor should have in mind. This is the case regardless of whether you are a private or a large REIT.
The CAP will vary from one city to the other depending on the current market conditions and the pockets within a neighborhood. So, you can find a building from one part of the city with a 5% CAP and 6% Cap on the other side.
Read More: Apartment Specials
The challenges
It’s also a good thing to consider all the challenges that you are very likely to encounter when you are investing in apartment buildings. Most first time investors are likely to encounter challenges along the way. The wrong is that you are looking for an ugly duckling building on a price charming street. The building should have rent below the average but it should plenty of upside when it’s renovated but don’t know how to go about it. In this case, you can spend some little money in renovating and will eventually make more after the results are visible.
The 5 monster wealth Multipliers
Investing in building apartment is a brilliant idea because it has the capacity to fulfill the five main multipliers which are the positive cash flows, tax benefits, appreciation, debt pay-down and the future value of money multipliers.
- Positive cash flows-When you buy an apartment, it is likely to produce cash in excess of expenses, capital investment and debt. This leaves the investor with a positive cash flow.
- Tax Benefits-There’s a chance for you to reduce the taxes owned on ordinary income through a simple method of depreciating the building and all the equipment lying on the land. This is because the IRS will allow you to write off the apartment over years.
- Appreciation-It starts from getting the right property and everything else will follow. You need to look for apartment special features that are likely to attract more money in the future. This will be so adorable in an apartment that will continue becoming strong over time.
- Debt pay down-some people believes that all debt is bad debt which is not always the case. As a matter of fact, in apartment investment, the debt is a landlord’s best friend but only when it’s not abused.
- The future value of money-One mistake that people makes is ignoring the real wealth creation of time. The rents we have today and those we will have twenty years from now will be very different.
Investing on Building apartment for Beginners
Beginners always have a hard time in making it work in Building apartments. Though, there’s always something someone can do to make it work perfectly and make money. At this point, we are sharing a step by step guide on how beginners can make money through building apartments.
Make sure it’s the right investment for you
It doesn’t matter what level of an investor you are, making sure the type of investment is the right for you is the first step. Consider the time and the cost and see whether you are at a chance of making money here.
The type of apartment building
Apartments come in all sizes and shapes which mean you can find out one is a big mansion that is divided into different units or a modern multistory building. So make this decision well and determine which of the sizes and shapes you want to invest into.
Identify a property
Now that you know where you want to invest, it’s the time to identify a property. You can search for properties on your own or get an expert to help you along the way. One way to search for property is to join a real estate investment club or an organization.
Due diligence
You also have to mind your due diligence. This means you have to conduct an in-depth-analysis of the property and make the decision.
Make an offer and close the deal
The last step is to make an offer and the value the apartment can appraise and eventually close the deal. This decision will be determined by the market prices and several other factors. This way, we usually advise to see expert help for a good decision.
