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An agent can help you find appropriate properties in areas that are worth investing in. You could do a lot of this research on your own by looking online and talking to other investors in the area. But an agent can save you time and money. Ask other landlords which agent they used and if they would recommend this person. Ask what they liked about him or her. Find an agent who does real estate work full-time. Someone who works part-time might not follow the market closely. Also make sure the agent has experience purchasing apartment buildings. There are different types of apartment buildings you could buy. You should talk with a real estate agent about your preferences. For example, a building might be mixed use. This means it has apartments in it along with commercial real estate that you could rent out. A building that is occupied will be easier to finance, so check to make sure how many units have a tenant. Also consider the size of the building. A loan for an apartment building with one to four units will not be much different than a loan for buying a house. However, if the building has five units, then a lender will consider it an apartment building. You want to see the building in person, so tag along with your real estate agent to look. Take notes as you walk through the buildings. Unless you are trying to flip a building, you might want to avoid any apartment building that is too run down. Ask the current owner about tenants. Check how many units are rented, how long the tenants have been there, etc. Question the current owner about why they are selling. Perhaps the owner wants to switch investments, or maybe the neighborhood is going downhill and they are losing money. The reason why they are selling could influence whether you purchase the building. Don't make an emotional decision. Instead, try to analyze each building as an investment. To properly assess the building, you should request certain information from the seller. For example, make sure to get the rent-roll, which should include the following: complete list of units names of tenants terms of each lease monthly rent size of the units numbers of bedrooms and bathrooms in each unit The current landlord might be undercharging rent. You should research what the market rates are in the area and calculate the likely rent accordingly. Check websites like padmapper.com to see what rents are like in the neighborhood. However, you should go around and see the properties in person to check that they are equivalent to the units in the building you have looked at. You can also call property management companies and ask what they think you could charge for your units. You should ask the current owner for the building's Profit and Loss statement (called the "P & L"). However, you should study it critically. The seller has an incentive to bend the truth. You can double check some of the information by doing the following: Estimate the amount of maintenance necessary. Newer units might need around $500 per unit a year. Obtain tax information by calling the county assessor's office. Get an insurance quote from a company that insures commercial properties. Call property management companies and ask how much they charge. They usually charge a percentage of your gross expected rent. You need to understand the finances of being a landlord. Lenders will want to see that your property is profitable before lending the money. You also want to confirm in your own mind that you'll be able to make your loan payments. Consider the following: Most lenders will probably want 25-30% as a down payment. Check if you have this amount of money. You'll need to calculate the net operating income. This is the amount of money you'll make minus expenses. Analyze your cash flow. This is the amount of money coming in relative to the amount you are spending. If you don't know how to analyze the finances, then contact a Certified Public Accountant who can help you. Your offer will depend on how much money you want to borrow and what you think the apartment building is worth. Talk with your real estate agent about what is a realistic offer. In a hot real estate market, you might not want to be aggressive because buyers might be snapping up buildings. Instead, you can expect to pay close to what the seller is asking. Negotiate at least a 90-day escrow period. This will give you 60 days to have inspections done and then an additional 30 days after that to close. You should have the building inspected before going through with the purchase. Make sure that the inspector has experience with commercial properties. You can find an inspector by asking your real estate agent. Before hiring, ask the inspector what they will check. A standard inspection will look at electrical wiring and the building's structure. If you want more checked, then make that clear to the inspector. If there are problems with the building, then you can have your lawyer approach the seller and request a credit. This credit will reduce your purchase price.
Work with a real estate agent. Identify the type of building you want. Visit buildings. Request the rent-roll from the seller. Analyze what you could be charging for rent. Calculate likely expenses. Determine how much you can spend. Make an offer. Hire an inspector.