Apartment buildings can be a reliable source of income if they are well maintained, well run, and successful. If they fit these three criteria, your pockets will never be empty. However, if one of them becomes neglected, your profits will start to slide.
Generate Income from Your Apartment
The first thing you need to do to make a steady income from an apartment building is to choose the right one. Apartments come in many shapes and sizes, but there’s only one shape and size that’s right for you. Your building must fit your goals and investment strategy. It needs to be within your budget and your expectations of a multi-family investment property. The location of the building will make a large difference in its profitability, along with the approach you want to take towards it (hands-on or hands-off). An assessment of the apartment you are interested in will go a long way in deciding if it’s the right one for you and your portfolio.
After you’ve picked an apartment to purchase, you need to enlist the help of your power team to ensure you’re doing your due diligence. Your power team should consist of your realtor, property management company, lawyer, accountant, and broker. They’ll know what your plan and goal is for the property and will help you come to important decisions. With your realtor, visit the apartment and take a tour of its units. Have everything inspected—furnace, hot water tank, plumbing, etc.—to ensure systems are in order. Your power team will look at your expectations of the building and compare it to what it can realistically make you. During this due diligence process, your power team will be honest with you about the facts. If due diligence isn’t exercised, the building could cost you money, not generate it.
Fine Print and Experience Will Make You Money
The next item you’ll need to scrutinize carefully is your financing; you need to get a deal that works for you, not the bank. If you put more cash into your down payment, then you’ll have a higher cash flow to cover expenses or complete renovations. If you only supply the bare minimum, you won’t have much of a buffer between your monthly expenses and your mortgage payment. Your broker will also help you find the best interest rate. The financial deal and its fine print have to be structured in a way to help you achieve your expectations of the building.
Another way to create a reliable stream of income for your apartment is to use a property management company. They are the ones that will help you navigate this investment successfully and get the most out of it. They’ll deal with the day-to-day operations and account for the NOI at the end of each year. They’ll help you trim frivolous and unneeded expenses, putting more cash into your pocket each month.
Lastly, you need an exit strategy for your investment. This specific strategy will help you achieve your exact ROI. If your exit strategy is long-term, you’ll have an income stream for the next 20-30 years, which at that time you can sell the property. If a short-term strategy is more your style, you would have a different one. Either way, you need to plan your exit strategy properly depending on your ROI and away from any market expectations.
There’s a lot that goes into making an apartment a reliable income generator. You need to choose the right building, do your due diligence, get a good financing deal, hire an experienced property management company, and determine your exit strategy. When all this has been done, your apartment will be well on its way to being profitable.