Posted: Buying Investment Property
Apartment Buildings
When most people buy property, they think of good locations, and they hope the location they pick will appreciate. If it does appreciate (and it usually does), then their investment has been successful; this is their strategy.
Unfortunately for these people, this is a very poor strategy likely to produce only meager results. The reason is because appreciation is only third in importance. Ranking ahead of this is property improvement; property improvement is a sure way to increase your equity and guarantee yourself a profit. This is critical and must always be kept in mind when buying investment property. But, ranking ahead of even this is maximum financing. You should try to finance as much of your investments as possible. A 100% financed investment property is ideal; since you put no money into the property, the return is essentially infinite (you never put no money into property, but the principle is the point). However, 100% financing is a thing of the past now, as banks were hit hard by the riskiness of it. You should plan on putting about 20% down on all of your property.
Sometimes, instead of property improvement, you can improve the operations of the property. This includes raising rent, lowering expenses, paying employees the correct amount, etc. This discussion is more fitting to larger apartment buildings than it is to smaller buildings, which is the starting point in property investment.
Beginners will not focus on commercial property; commercial property is far too risky for the novice. Commercial property comes in many different flavors. There are warehouses and office buildings and strip-malls and many other types of commercial properties. Each one of them must have many employees (hotels included), and they are considered businesses, not real estate investment. On the other hand, houses and apartment buildings require very few employees to run and operate the property. This is your best friend. You want as little hassle as possible. This is not because you want to take it easy, but because you know very little about property investment and you should not get yourself in the middle of something that will go way over your head.
Residential buildings have very few vacancies. They are always in demand; people always need places to live. Office buildings might rent well while a business occupies them, but they might pose to you a problem finding new tenants after that business leaves. Residential buildings, however, are needed by anyone and everyone. Apartments are easy to fill, and they take advantage of the pie concept. The pie concept is that each piece of the pie, when sold individually, will bring in more revenue when totaled together than the pie sold whole would. With a single family home, you are selling the whole pie. But, with apartment buildings, you are selling the individual pieces.
Our strategy is sure to create success for you.