Apartment investing is one of the simplest ways to make money in real estate. These investment properties are in high demand and their low maintenance requirements make them the perfect option for a beginner real estate investor. So how to buy an apartment in 2020? And how does the process of renting out an apartment work? In this blog, we will expand on the benefits of apartment real estate investing and share with you 5 simple steps to buying an apartment to rent out.
The Benefits of Investing in Apartments
Before delving into the investing process, we must first answer the following question: «Is investing in an apartment a good idea?». The answer is a resounding yes. When done responsibly, buying an apartment to rent out can be a highly profitable real estate investment strategy. Let’s take a closer look at some of the benefits that you can expect from this type of real estate investment:
- Renting out an apartment offers dependable rental income as apartment vacancy rates are extremely low and demand is consistently high.
- Apartments are easy to manage and real estate investors might not need to retain the services of a property management company.
- Because of the aforementioned reasons, apartments are the least risky option when it comes to buying a rental property.
- Investing in an apartment reduces your taxable income by allowing you to write off your expenses.
Let’s now detail the steps of buying an apartment to rent out.
Buying an Apartment to Rent Out in 5 Simple Steps
If you are planning on buying an apartment to rent out, then you surely have a lot of questions regarding the process. «How does buying an apartment work?», «How to find apartments for sale?», and «How much does an apartment cost to buy?». The steps below should be helpful in clarifying every aspect of apartment investing.
1- Explore your investment property financing options
Depending on which real estate market you invest in, an apartment could cost you anything from $150,000 to well over $1 million. This means that you will most likely need outside financing. This is why exploring your options before buying an apartment to rent out is highly advisable. In fact, generating positive cash flow is partially dependent on your ability to get affordable investment property financing with favorable terms.
Here are some of your options when it comes to financing an apartment:
- Traditional mortgages: This is the most common financing option for residential real estate investing. These loans aren’t covered by mortgage insurance and require a 20% down payment.
- Home equity loans: These are loans that allow you to leverage the existing equity in your current home. In fact, you can borrow up to 80% of your home’s value.
- Private financing: This method involves working with private lenders who use their own capital to finance real estate investments. Investors might be able to obtain favorable terms since these lenders tend to have more lax approval requirements.
Related: 6 Types of Loans for Investment Properties in Real Estate
2- Pick an ideal location for apartment investing
The next step of buying an apartment to rent out is picking a location. The ideal location should boast a wide range of qualities that are conducive to profitable investments. Examples of variables to focus on when choosing a location include job and population growth, the median salary of the workforce, and overall economic output of the area. Moreover, a good location for buying a rental property should also have a decent transportation system as well as an abundance of schools and institutions.
A great way to assess the viability of a particular location is to use the real estate heatmap. This practical tool employs a set of visual cues that make identifying the most profitable neighborhoods an intuitive and simple process.
3- Use real estate investing tools to find top-performing apartments for sale
The key to a profitable real estate investment is being able to identify the top-performing properties in any housing market. Luckily, you can do that right here on Mashvisor. The Property Finder is an advanced tool that utilizes cutting-edge AI technology and the latest machine learning algorithms in order to sort the best income properties in terms of performance. Moreover, the filters allow you to specify the exact type of property that you are looking for. Consequently, finding ideal apartments for sale can be done in a matter of minutes.
4- Conduct an investment property analysis
After narrowing your search down to a few options, you should then run an investment property analysis to determine which is the most profitable investment. A thorough analysis takes into consideration all the expenses that pertain to buying and managing an apartment and weighs them against the expected rental income. If this amounts to a decent cap rate, a positive cash flow, and good cash on cash return, then the investment can be seen as a viable one.
It is worth noting that you won’t have to conduct a manual investment property analysis. In fact, you can obtain accurate ROI estimates with a few clicks of a button by using the investment property calculator. Using this tool will enable you to buy an apartment that is guaranteed to yield a high return on investment.
5- Get the apartment professionally inspected and appraised
The last step of buying an apartment to rent out is inspection and appraisal. An inspection is essential for ensuring that there is no structural damage in the apartment and that no costly repairs are needed. As for the appraisal, it is often requested by the mortgage provider and its main purpose is to check if the purchase price is in line with the appraised value.
Related: Real Estate Market Analysis vs Home Appraisal: What’s the Difference?
Renting Out the Apartment
After completing the steps above and finalizing the closing, all that is left is putting up the apartment for rent. Here are some of the best practices that you should abide by when renting out your apartment:
- Invest in some home improvements and equip the apartment with modern amenities.
- Use social media to market your rental property.
- Screen your potential renters carefully and request all the documents that pertain to their employment history.
- Hire an attorney to iron out all the legal details.
Related: How to Become a Landlord: A Guide to Buying and Renting Out a House
Buying an Apartment to Rent Out: The Bottom Line
Buying an apartment to rent out is a fairly simple real estate investment strategy that every investor should be able to implement. Following the steps outlined in this article should make the process even easier and more streamlined.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.