One of the biggest mistakes property investors make can happen while analyzing numbers on an apartment complex deal. When you buy a project, your biggest challenge is to look at the numbers and figure out whether you’re going to make money or lose money on that deal. It’s important to come up with an offer based on those numbers.
Always take into consideration that apartment buildings and houses have vacancy factors. The minimum vacancy you ever want to consider is five percent. Depending on the area, you may find properties that have a rate of 10 or 15 percent, so check vacancy before making an offer.
If you have a roof on the house, you know you’ll need to replace that every 20 years. You’ll need to do the same with parking lots and sidewalks. You want to put down a minimum of three percent for capital improvements. But look at what you’ll be doing over the years so you can factor those plans into figures.
Maintenance will be required on every house or apartment you own. We recommend budgeting 10 percent of your monthly rent for maintenance unless you have really high rent or really low rent. If your rent is only $300 a month, the maintenance budget will require more than $30 a month. Look at the area and measure your expectations.
Taxes and Insurance
Some counties can go 70 or 80 percent in expenses. Don’t buy a property expecting that expenses will be around 30 percent and then stretching to 70 percent once you own it. You will lose money on that deal for a long time.
If you have any questions about the budget you’ll need to create when you buy an investment property, contact us at Kirch Property Management.