Bottom line is yes, many companies re-position apartments for resale and make a lot of money doing it.
However, many new investors to this arena are coming directly from the single family investment market. They might not fully understand how apartments work.
In apartments, we’re looking almost exclusively at how stable and consistent the income stream is. All activity around re-positioning the property should be around how to increase the income and increase the stability of that income. Lets talk about that for a bit – I’ll show you some simple ways to force equity into an apartment and how to use that knowledge to secure listings.
Flipping apartments is the most similar to flipping homes. Kitchens, bathrooms, carpet, paint and the physical aspects are very similar to SFR. The big difference is that the end buyer is different and we are still looking for that bump up in Net income.
Within apartments you have different size properties. There are small apartments (5-15 units), small-midsize (16-50 units), midsize (50-100) and large 100+ unit apartments. You will often find the 50 unit or less apartments owned by “mom-and-pops” and over 50 owned more by some sort of entity like an LLC, Corp, or REIT.
The good news is you can find opportunity in all subsets, just comes down to the bank-roll of the client and the level of risk the investor is comfortable with.
Here are the goals we want to achieve when improving apartments (not necessarily in this order):
The goal for flipping is going to be looking for the spread, which means finding a ugly and/or mismanaged property and making it beautiful (both to the eyes and wallet).
I could write a book on all the ways to improve the value of an apartment building. But let me get you started with some cool ideas. Again, we want to increase our Net income. We can do that by adding additional revenue sources and optimizing existing revenue, and cut our expenses by eliminating all wasted energy and offsetting costs.
Sometimes it is even easier. We often find that the current owner can be a detriment to a property, and all it takes to flip a property is NOT be the current owner! Let me give you a real example:
There’s an 8-plex close in my area. The current owner has owned it for about 30 years. The net income she could care less about. What is keeping the units mostly unoccupied is that if she doesn’t like the way the tenant looks or talks, then she will not rent it out. Which seems to be every tenant that inquires!
So the property sits and deteriorates. The units are nice too! She is unfortunately set in her ways.
It’s an opportunity for someone at the right price. Sometimes you can find an owner who is simply way over their head and needs a way out.
A 20% ROI on a $200,000 SFR house flip is $40,000. A 20% return on a $2,000,000 is $400,000. While it takes a little more time and energy to complete, there can be a huge upside when you sell.
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