Buying an apartment for investment is one of the simplest strategies in real estate. In addition to being easy to manage, apartments can yield sizable rental income without requiring a large initial investment. The potential of generating passive income without exerting a lot of effort has made buying an apartment and renting it out the go-to investment strategy for many real estate investors. Keep reading as we explore the viability of this strategy and offer a few of the top tips on how to buy an apartment.
Do Apartments Make Good Investments in 2019?
The real estate business has witnessed some seismic changes in recent years. However, a few tried and proven strategies remain as effective as ever. One such real estate investment approach is buying an apartment for rent. So how much does it cost to buy an apartment? What makes it a better investment than other types of property? Let’s answer these questions and go over the main advantages of buying an apartment for rent.
1 – Apartment Occupancy Rates Are at an All-Time High
The high occupancy rate is one of the main reasons why you should consider buying an apartment. In fact, recent reports have put the figure at a staggering 96%. Needless to say, the implications for real estate investors are significant. A high occupancy rate is one of the most reliable indicators when it comes to estimating a rental property’s cash flow.
2 – Apartments Are Cheaper and Easier to Finance Than Other Types of Properties
Another major advantage of opting for apartments is their affordability. Whether you are looking to get a loan or use your own funds, an apartment will usually cost you less than a large house. This is ideal for real estate investors on a budget or those who don’t feel confident enough to take on a huge mortgage.
3 – Apartments Generate a Higher Rental Yield
Rental yield refers to the income that the rental property generates as a percentage of the property’s value. The importance of this metric should not be overlooked. As a matter of fact, rental yield gives investors an accurate measure of income relative to expenditure. The fact that apartments offer a higher rental yield makes them ideal for short-term and medium-term rental strategies.
This is not to say that apartment rentals aren’t without their drawbacks. For example, apartments tend to have a lower appreciation rate and their ongoing costs are slightly higher. Having said that, the positives more than offset the few negatives and buying an apartment is still a highly recommended investment strategy for most investors.
5 Tips on How to Buy an Apartment
While investing in apartments is relatively simple, you still have to follow certain guidelines. Rushing in without considering all the variables at play will invariably steer you toward a bad investment. To avoid this, let’s take a look at some tips on how to buy an apartment for investment.
1 – Take the Time to Understand the Mortgage Market
If you’re planning on financing your investment with a loan, then it’s imperative that you familiarize yourself with the mortgage market. Getting the right mortgage can be a determining factor when it comes to the profitability of your investment. In fact, a good mortgage can contribute to keeping your costs low and boost the cash flow potential of the investment property. Consult with a professional to make sure that you’re getting the best deal possible.
Related: How Is Investment Property Mortgage Different from Home Mortgage?
2 – Make Sure to Pick the Right Location
Location is one of the most important variables in real estate investing. The consequences of picking the wrong area can be serious enough to tank your entire investment relatively quickly. This is why it is critical that you pick a location that boasts all the essential amenities. Apartments that are situated in such locations tend to have great tenant appeal and are also more likely to experience high capital growth. Here are some of the amenities that should be present in the area you invest in:
- A comprehensive public transport system
- Multiple schools and childcare facilities
- Healthcare
- Recreational facilities
3 – Conduct Data-Driven Market Analysis
Now that you have a few markets in mind, the next step is gathering historical data and analyzing it. This data consists of several metrics that are integral to real estate market analysis. Make sure to check the cap rate, average property price, and average rental income in several markets. Ideally, you should opt for a market that offers long-term growth. Analyzing these metrics is one of the most effective ways to assess that potential.
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4 – Look at Multiple Options Before Making a Decision
After establishing your criteria, it is advisable that you look at at least 8 or 10 apartments before picking an option. Many novice real estate investors make the mistake of rushing through this process. The right approach is to check as many listings as possible to get a full idea of what the housing market offers. Moreover, expanding the scope of the search raises the likelihood of finding the perfect apartment for sale. Online listings are especially helpful thanks to the amount of detail that they provide regarding the property.
Fortunately, Mashvisor has made the process of searching for apartments extremely easy and convenient. Our Property Finder can help you find your ideal investment property with a click of a button! The tool boasts a number of filters that allow you to narrow the listings down to your own criteria. Start using the tool for free right now.
Related: The Ultimate Beginner’s Guide to Real Estate Investment Analysis
5 – Hire a Professional Home Inspector
Hiring a licensed home inspector is the best way to ensure that everything is above board. A professional inspection will uncover a host of issues that inexperienced buyers might miss. More importantly, identifying such irregularities early-on will save you the hassle of fixing the investment property up after the deal is finalized. Furthermore, an inspection will reveal the intrinsic value of the property. This could potentially form a ground for re-negotiation of the purchase price.
Related: The Ultimate Property Inspection Checklist for Real Estate Investors
These 5 tips on how to buy an apartment can be useful regardless of your real estate investment strategy. As long as you adhere to these guidelines, you will be able to find the apartment that suits your needs in no time.
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