Though potentially profitable, apartment investing is full of hazard.
Here are some guidelines offered to first-time investors by veteran apartment owners:
Familiarize yourself with a particular area. "Don't just look at the building by itself," says Harold Greenberg of Los Angeles, an investor who is also a lawyer. "Drive around the neighborhood. Are there gangs? If so, the gangs will control your building, not you."
Rely on your own research, not the assurances of salespeople. "If you take what the real estate broker says as gospel, that's a terrific way of getting a haircut," says William Shaw, president of Roxbury Properties in Beverly Hills. Keep in mind that markets differ, he says. "Bakersfield is different from El Centro."
Do not overpay for property. Buying advantageously today increases the possibility of selling profitably tomorrow. "You make money when you buy," Shaw says.
Keep cash in reserve. "Don't throw all your money into the deal," Shaw says. By keeping some money back, "you'll be able to fix problems in the building."
Research the market thoroughly. Unlike for single-family homes, no listing service exists for apartment buildings. Listings of sale properties will vary significantly from one real estate brokerage to the next. "Get out the phone book and call every broker" to find out about listings, Shaw says. Another good source of market information: property management companies.
Is your potential purchase a "problem building"? "There are a lot of bad buildings and a lot of bad people who own them," Greenberg says. He recommends checking records to see whether the building has been cited for substandard conditions by the Los Angeles Housing Department or the Los Angeles County Health Services Department.
Does the building meet current code? In some cases, certain requirements such as off-street parking may be waived or "grandfathered" for older buildings. But you must be sure.
It's often better to invest now than wait for ideal market conditions. "You'll never feel like it's the right time to buy, because property always seems too expensive," Shaw says. History "has shown that when there is less competition the market is favorable for investor-friendly (i.e., affordable) transactions."
Expect some jitters. Everyone feels anxious when making important life decisions, "and you are going to have anxiety when you buy real estate," Shaw says. The key, he says, is to make those decisions when you are calm and well-rested, not at the end of a long day.