Apartment buildings in Hagerstown: Income, Expenses & Maintenance
There is no doubt that real estate investing provides you with a great ROI! Have you ever ventured into the world of apartment building investing? There are may different types of investment properties such as single family, commercial buildings and multi-unit apartment buildings. In this article, I will be explaining some of the most important key variables you must know when buying a multi-unit apartment building. Knowing these variables will provide you with confidence, especially if you are buying an apartment building for the first time. Variables such as rental income, Operating expenses, and overall maintenance are critical when analyzing a multi-unit apartment deal.
It is imperative that you find out the rental income of the apartment building you are purchasing, this is also known as the rent roll. The rent roll will identify all the units and their corresponding rent amount. The total rent roll will tell us the monthly rent which will ultimately provide us with a yearly gross rental income. For the savvy investor knowing the rent roll could help identify a great deal! Let me explain, As a real estate agent in Hagerstown, I have worked with a lot of multi-unit apartment building owners. A small percentage of sellers are owners that have inherited these apartment buildings and are not able to manage the properties appropriately. What does this mean? Well, sometimes these landlords do not manage the properties as a business, rather they run it as a “charity”. They will lower the rent if tenants can not afford it or allow tenants to pay whenever they want. Knowing this is vital, because it is is a great opportunity! Lets say that the current rent value for a 2 bedroom, 1 bathroom apartment is $ 700 but the landlord is only charging 600 because maybe he gets along with the tenant or the tenant could not afford the original rent. In any case, the landlord preferred to keep the tenant for 600 losing 16% of income. A knowledgeable real estate agent knows the current rental value of the area. He will be able to tell you whether the rent roll has potential to be increased with the right management in place. Knowing the rent roll and working with a savvy real estate agent is critical if you want to be able to identify a great investment deal.
The next variable to know before buying an apartment building are the expenses! This variable is critical because it ultimately affects your net earnings. Below a list of expenses that you will see in a typical multi-unit apartment building:
-Utilities: electric, gas, water, trash, sewer
-Taxes: state & city
-Mortgage (if financing)
-Maintenance & Average Repairs cost yearly
Just like you can increase the rental income, you can reduce the expenses incurred! How? By doing a little more digging into the expenses. Obviously, utilities are based on consumption by the tenants, something critical to ask is, Do the tenants pay for their own utilities? are the metered separated? I will cover a little bit more on the due diligence article coming up soon. The expenses that you might be able to reduce are the insurance, maintenance, and the repair cost. One example of how you can reduce expenses are by managing your investment properties yourself. Perhaps you live close by your apartment building and could manage it yourself, This would save you anywhere from 8 to 12 % from your monthly rent since you will not need to hire a property manager. that is just one way you can focus on reducing your expenses so you will ultimately increase your net earnings! Increasing rental income & reducing your expenses will provide you with a stupendous ROI.
Maintenance is the third most important variable that is worth of analyzing when purchasing an apartment building. Not only will this variable affect your yearly expense but also future headaches in time-consuming tasks. Below are some of the key variables I recommend to keep in mind when analyzing a multi-unit apartment building.
– Exterior wall conditions
-Freshly painted: Plus!
-Chipping away: Minus!
– Exterior Roof conditions
-Recently Replaced: Plus!
-Recently fixed: Minus!
– windows type
-Replacement windows: plus!
-Wooden windows: Minus!
– Condition of interior units
-Recently renovated bathroom/kitchen: Plus!
-Kitchen/Bathroom needing constant maintenance: Minus!
– Leasing tenants
-80% of tenants have lived there for over 5 years: Plus!
-80 % of tenants recently moved in the past few months: Minus!
The best case scenario from a real estate investor’s point of view is having a multi-unit apartment building with recently installed vinyl windows, freshly painted exterior wall, Decent interior units where kitchen and bathrooms are in pretty good shape and having tenants that have lived there over 5 years currently paying a current market valued rent. Of course, I am describing the perfect investment opportunity (assuming the listing price is a steal).
Whether you are a seasoned real estate investor and are currently planning in venturing in multi-unit apartment buildings or a complete beginner, Make sure you do due diligence on the rental income, expenses, and maintenance of the building you are looking to acquire! Also having a real estate agent that has worked on both sides, seller and buyer sides can help you identify the potential of the building you are purchasing. I always advise my clients that are looking to purchase new multi-unit apartment buildings in Hagerstown is to check the conditions of the windows, roofs and exterior walls! because the replacement cost for these items are very expensive. I hope this article helps you identifying a great deal when purchasing an apartment building.
If you have any questions about real estate investing, specifically about investing in commercial/multi-unit apartment buildings in Western Maryland, feel free to contact me. RG realty Inc specializes in multi-unit apartment buildings in the Hagerstown area. We closed over 60 deals last year and we are looking to pass our previous record!
Let’s Invest in real estate!