PURCHASING MULTI-RESIDENTIAL APARTMENT BUILDINGS

By Dino Nicosia

There hasn't been a better time since the mid 1980's to invest in apartment buildings, and with the recent changes to rent controls, lower vacancies and rising rents, multi residential properties have become a very popular investment for the wise investor.

For those investors who are venturing into the exciting and sometimes complicated and highly specialized world of real estate investment for the first time, we hope this and future articles will unravel and simplify any questions you may have.

The first and most important tip we can offer in this highly specialized area of real estate is to work with a salesperson that is both experienced as well as knowledgeable in the field of apartment building purchasing and ownership.

Most investors prefer to finance their purchase with a low down payment for leverage purposes. Because of the demand for apartment buildings and stability, there is a very good appetite for this type of investment amongst lenders. It is also comforting to know that there are many lenders out there who specialize in the financing of apartment buildings.

Accordingly, it is very important that you select a broker who is familiar with investment financing and one who can direct you to the lender that is "right" for your purchase. Choose a lender who wants and knows how to satisfy your requirements with the least amount of hassle.

It is also critical that your Realtor have an understanding of financial statements of a building's performance and make appropriate adjustments where necessary. Your informed agent will usually look for financial records of at least three years and will know the income and expenses "norms" within the industry. He/she should be familiar with such things as vacancy rates for the area as well as the normal operating expenses that relate to apartment buildings. He/she will know appropriate expenses for management and costs of superintendent as well as the annual maintenance cost of a building. He/she should also understand and be able to explain the terms such as "Cap Rate", GIM" "NOI" "Leverage" "Debt Coverage" and "ROI", etc. We will be discussing these terms in future editorials.

And finally, it is critical that your lawyer is familiar with real estate transaction and be experienced with investment properties. We cannot stress this enough, since not all lawyers have the expertise and understanding that is necessary to complete the purchase of an investment property without unnecessary complications, and costs to you.