How you can spot and avoid the three mistakes that can literally ruin your apartment investment – making sure you make money when you buy an investment project… Avoiding the surprises that can cost thousands of dollars.
One of the things that is very important is knowing how to analyze an apartment property financial statement. I could go into a 5 day seminar on this alone and maybe at some point in time I will.
For now and for this article though let me give you the top three mistakes people make when they analyze an apartment property financial statement:
1. Taking the numbers at face value.
This is a big NO NO. Remember, it is in the owner’s best interest to have his numbers look as good as possible. Make sure that you do not put your faith in the numbers provided by the owner or the broker. Do some investigation. Is the insurance REALLY $1,500 per year? Are the property taxes REALLY $4,000? Is the rental income ACTUAL rent or POTENTIAL rent? Make sure you ask.
2. What is the current vacancy?
Verify this too. Most owners will put down 0% or 5% vacancy. Make sure this is accurate for the property and for the area. Many owners are overly optimistic and think that the new person can and will have a lower vacancy than they are currently experiencing. Check the CURRENT RENT ROLL to verify this. Then inspect the units.
3. Not looking under the surface.
In reality, this is the biggest mistake. Make sure that you ask yourself… “Can the rents be higher than they are now?” or “Can I reduce some of the expenses?” Remember that you need to be REALISTIC here. We all tend to be optimistic when it comes to how WE can change things. This is where the big money is really made: finding realistic increases in value and cash flow from thin air without having to do a bunch of work to the property.
I make sure that I go through these three processes every time I look at an apartment property to purchase. This is a good habit to get into.