Expert: Dick Dennis - 5/22/2008

Question
I am intrested in buying residental apartment buildings and I would like to know what questions I should ask.

Thank you very much

Answer
Residential apartment buildings is hard work, Howard. Once you have bought your first units, I hope you are ready to quit your job, because your job will be to make sure the units are in good shape, the tenants are behaving and checking what the market is like. Most likely your units will be located near other units or other kinds of residential rentals. You will want to buy your units in an area where the vacancy factor is low. Therefore, the real estate agent to work with will be someone who has been in the business for a looooooong time. You will also find that those units you will want (in better neighborhoods and low vacancy) will have a lower "cap rate," maybe 6-8%. Units with higher cap rates will cost less but you may not want to own those properties. I recommend you contact an agent with a CCIM designation. That person knows commercial properties up and down.

So, you need to check around and see what the rents are in different areas. You will note that those that lower rents will mean the buildings need more maintenance. More maintenance translates to lower price for the properties but high cost of upkeep.

So, you might want to walk into your nearest commercial real estate company that helps clients buy and sell properties. DO NOT WALK INTO A REGULAR HOUSE-SELLING REAL ESTATE OFFICE. You should sit down and interview a good agent and let him know how green you are. Do this two or three times to ascertain which is the best company and/or agent with whom you want ot work.

As you can see, Howard, you asked a lulu of a question. I would have to write a book to answer it completely. You can go buy a book on the subject and you will get lots more info. Or you can trust to a commercial real estate agent. You may want to invest in real estate the easy way with much less headaches and cost --- buy houses one at a time. Pick up a book by John Schaub. You will thank me profusely for that bit of information. I do wish you well.