Anytime you evaluate an apartment community you need to know the income, expenses and debt service. You also need to get answers to these 11questions to ask before buying an apartment...
- Why is the seller selling? 1031 exchange sellers have a completely different motivation level than sellers looking to “entertain offers”. Estate sales are different from someone who wants to retire and move to Florida. This is a critical piece of info that you’ll want to ask at least 3 times because the answer could change the more you ask.
- How long has it been on the market? Tells us more about the motivation factor and perhaps if there’s anything glaringly wrong with it.
- Will the owner do seller financing? Ahh, the two most beautiful words in the English language are “seller financing.” Get this for every deal if you can. Make the terms so it’s a win-win for both sides.
- What is the screening process for new residents? Do they take people out of homeless shelters and give them an apartment? I’ve come across this. It’s ok to do but you just know what you’re getting into beforehand or do they have rental history, income requirements, work history, credit score, and criminal background check qualifications?
- What is effective occupancy? You and I can fill ANY apartment building so it’s 100% occupied. That doesn’t tell us squat. We need to know effective occupancy which tells us how many of those residents are paying.
- What is market rent? What do similar apartments rent for in that area?
- What is market occupancy? You can get this from the property mgmt. company or broker.
- What type of work is needed on the property? Take with a grain of salt. There will be plenty more they don’t tell you that you discover during due diligence.
- When was the last time the ac units were cleaned? This question is for when you meet in person. It’s a silly question to ask over email but when you meet in person at the property ask it. If they don’t have an answer that’ll tell you they likely don’t have regular, ongoing maintenance as a priority. That means more money to be allocated in deferred maintenance.
- When did they buy the property and what did they pay? Find this out by asking your broker. Tells you what the seller is thinking in terms of what they will get out of the deal.
- What kind of financing is currently on the property? If their loan is set to mature in a year then that might mean there’s more motivation for them to make a deal happen vs. a loan maturing in 4 years.
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.