Buy An Apartment Building With No Money Down - Is It Realistic?

By Ted Karsch

The brand new apartment building investor/buyer should be aware of what I consider to be the most important rule to multifamily investing:

First, the new apartment investor MUST find a profitable property

This may sound obvious but, in my role as an apartment building financing specialist, I speak to dozens of aspiring investors every week who call me or email me saying that they found a great piece of real estate, with a super CAP, in an excellent area, that is 95% occupied and that they would like to find a loan to purchase the apartment building. Unfortunately, many of these "great opportunities", upon closer inspection of such documents as rent rolls and the income and expenses, it becomes clear that the apartment building does NOT "debt service". This simply means that the real estate does not produce enough income on an annual basis to cover all expenses including the loan payments, taxes, insurance and maintenance costs. After doing the math, the investor goes back out into the field, armed with more knowledge. Persistence usually pays off because there are plenty of profitable properties for sale, it just takes some time to find them.

After finding a profitable apartment building THEN the investor should seek financing

Commercial mortgage companies and apartment building lenders almost always require a buyers contribution to be 20% of the purchase . The purchase price shouldn't be confused with what the buyer thinks the property is worth, or even what the real estate recently appraised for. Banks are only going to lend money based on the purchase price of the apartment building. Of course, there are exceptions to this rule. One exception is when the investor is purchasing the place to do a construction rehabilitation of the property. In this case, the loan process is usually more involved and more documentation is required.

Many of the potential apartment building buyers that I work with don't have the liquid capital required for the 20% down payment mandated by the bank. Here are some of the strategies that DO WORK in the real world. There are no secrets, despite what many "real estate gurus" will you, to financing an apartment building investment with no or little money down.
Many investors are not aware of all the creative methods that can be used effectively to raise investment capital. Here are some of the ideas that I have seen be successful in the real world, with real investors, buying real apartment buildings with less money down.

1) Incorporate a limited partnership and raise money from other investors. Forming a limited partnership for the purpose of raising money for an apartment building investment is a great solution if the investor does not currently have the liquid capital needed for the 20% down payment. A limited partnership should be formed under the direction of an experienced real estate attorney who understands the intricacies of this kind of partnership agreement. The limited partnership normally consists of one general partner and one or more limited partners. The general partner is the only member who has the power to make executive decisions concerning the apartment building investment. The limited partners invest their money with the expectation of receiving a return on their investment when the property is sold or as structured payments from monthly net cash flow. The investor/general partner should prepare detailed financial statements on the project to present to potential limited partners in order to convince them to invest their hard owned money. A good real estate attorney should be able to help with this aspect of the partnership as well.

2) Raise capital from friends and family
This may seem like an obvious solution but it is surprising how many investors neglect to look close to home when trying to fund a good apartment building investment deal. Unfortunately, if the investment doesn't work out as intended the investor not only is risking his investment capital but he is also risking a close friendship or good relationship with a family member. Because of this it is generally a good idea to have a qualified real estate attorney draw up a formal agreement that clearly spells out the responsibilities of all parties involved.

3) Obtain owner financing
Most owners of apartment buildings are experienced investors who are financially adept. They are accustomed to receiving and utilizing some form of owner financing to structure their investment projects. Many great properties have been purchased from sellers who have for some reason or another neglected the property or are ready for retirement. Sellers who are motivated to relinquish ownership of their apartment building will be more willing to offer some form of flexible owner financing.

If you are new to investing in commercial apartment buildings I highly recommend you read my e-course, "Buy Your First Apartment Building E-Course" This course not only gives you all of the in-depth information that you need to purchase your first apartment building but it also gives you all of the interactive forms that you will need to figure out the cash flow and expenses.
This course will actually teach you exactly how to determine if your apartment building will be a profitable investment. You will also get access to the names and phone numbers of 25 banks nationwide who specialize in commercial lending on apartment buildings. Visit http://www.ApartmentBuildingInvestor.com/ecourse.html to learn more.
Article Source: http://EzineArticles.com/?expert=Ted_Karsch

The Dangers Of Flipping Real Estate

By Gloria Smith

It's true that flipping real estate properties is one sure way of earning big bucks in a short span of time. When done properly and with careful planning and budgeting, investors have a good chance of attaining success. However, flipping homes is not as easy as some people might think because there are risks and downsides to this endeavor the reason why it's always best to be well informed before taking the plunge.

Flipping real estate is not just limited to buying a home, renovating it a bit and reselling it for a profit. Several vital factors are still involved which investors have to be aware of such as renovation expenses, property taxes, insurance and mortgage costs as well as rental pressures.
If you're buying a distressed property, you will need to spend some money renovating it before reselling the home.

In this case, you will have to estimate your renovation costs including materials and labor to avoid going overbudget. If you spend so much on the upgrades, you might not be able to recover your expenses and get a good profit by the time you sell the property especially in an unfavorable market condition. So the best thing to do is save money on building materials, paint and appliances if possible. If you can do the repair works yourself, well and good.

There is also the danger of increasing your property taxes if you fail to resell your flipped home right away and hold it for a few more years. Investors should be aware that taxes have nearly doubled in a period of five or six years in some hot real estate markets.

Failure to sell the home quickly is another risk flipping investors have to face. Real estate investors suggest that flippers look for buyers who are eager to live in a home and give them a lot of motivation to purchase your home. One way of drawing buyers is to stage the property meaning, make it attractive and clean inside and out as possible. It's a good idea too if you pre-qualify potential buyers who call to inquire about your property. Don't waste your time entertaining buyers or investors who are not serious enough in getting your home.

If your property stays long on the market, you might be forced to just have it rented. Also, there's a chance that the rental fee you charge may be less than who want especially when the market is saturated with rentals. With this situation, it will take long for you to recover your expenses and earn your profit thus, leaving you with a bad investment.

If worse comes to worst, you can opt to just sell your home at a very low price or keep the property and accept your loss then continue with whatever plans you have. Holding on to the property for long will only discourage you all the more. If you failed to study your plans before, then it's high time that you learn about the basics of buying and selling real estate so you can avoid the common mistakes. You can use various resources from books to the internet and you can even attend real estate seminars in your locality if they're available.

This article is brought to you by PropertyFlippingInfo.com. Read articles on house flipping, hard money lenders, and real estate short sales.
Article Source: http://EzineArticles.com/?expert=Gloria_Smith