Apartment building investing is definitely not a get rich scheme yet with effort and time, it can be a reliable way to generate income and achieve financial freedom.
You need to understand that not all apartment buildings are a good investment and when things do not go well then it can be very costly for you.
In this article, I will share seven mistakes newbie apartment investors usually make.
1. Investing on a Building that is located in an Unattractive Area
There are a lot of issues about an apartment building that can be fixed but you cannot fix your apartment's location.
Make sure to buy in an area that is improving since buying in a declining location will result to high vacancies and rent drop.
2. Not Having a Cash Flow
If you are not confident with your reserved funds, then only get into deals that will create a quick cash flow.
If you are a newbie, try not to go into deals that won't provide a cash flow from day one even though if that transaction involves huge potential profit.
You may be put at risk of not being able to pay the bills.
3. Inadequate Cash Reserves
Not having adequate cash reserves can get you in a complicated situation. Although, you are doing well in estimating the next repairs, income and expenses there are issues that can unexpectedly occur.
Examples are unexpected leaks and damages, several of your tenants suddenly stop paying, or your boiler unexpectedly breaks.
As there are a lot of unexpected issues that can happen, you need to have a reserve fund that is adequate to pay for emergencies.
Reserve as much as 3% to 4% of the purchase price as well as create a reserve fund out of the cash flow to be used in case of roof replacement, path ways repair, boilers repair, etc.
You should always have cash in stored as aside from unexpected repairs, there are issues with tenants that you may need to spend for.
4. Accepting Deals Hastily
Newbie investors are often so eager to do the first deal and the eagerness is even greater if you are using your own money.
You need to be patient and learn to take your time. Look into various deals so you can learn to identify a good deal.
5. Inadequate Investigation on Seller and Building Tenants
Although costly, due diligence or investigating the apartment business of the seller as well as current tenants prior to purchase can save you from massive and more costly issues.
For example, the seller may be showing a low vacancy rate in his/her property for sale but neglected to share the number of tenants who are actually paying.
There is a possibility that you end up with an apartment building with several tenants who are mostly scheduled for eviction due to lack of payment or other issues.
6. Ineffective Property Management
Property management is very important. To have better control as well as learn the system in the process, you should be doing the management yourself.
If you do not have the time and energy, then you can hire a property manager but make sure he/she is someone who is reliable and can manage your building carefully.
This is a subject you should highly consider as hiring an incompetent property manager can make your life and business miserable.
7. Delaying the Apartment Building Investment
You have read several books and attended numerous seminars about the venture but still you have not decided to join the investment opportunity.
You may have various reasons such as you do not have the money yet or you are too busy attending to your children's needs.
If you want to really learn the venture as well as acquire profit then you need to take action as though you have acquired a lot of knowledge, there is no way you can learn all the things there is to know about apartment building investing up front.
It is normal to commit mistakes but try to be smart and manage your risk effectively.
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