Buying Apartment Buildings: Look for Larger Units

Investing in a large apartment building is better than investing in smaller units for several reasons.

When you buy a building with a large number of units, you can expect the seller to have complete records. This makes the experience more professional and enjoyable. Also, when the size of the investment is large, you can expect the brokers to guide you through the whole process.

Buying a property can be a stressful experience especially because it involves a lot of steps that you may not be comfortable with. You have to complete several formalities and this wouldn’t be possible without expert advice.

Obvious cost benefits

When the building is large, the cost per unit is relatively low. For instance, the property management fees for larger buildings are relatively lower. Insurance costs may also be lower.

Less closing costs

When you buy a larger building, you pay less money in closing costs. Generally speaking, an appraisal may cost at least 2,500 dollars irrespective of the size of the building. In fact, you will be paying more or less the same amount for both small and large buildings.

The loan doc preparation costs may also be the same for both small and large buildings. The SEC attorney who prepares your legal documents may charge the same amount for preparing documents for units of different sizes. For a building that is worth $2M closing costs may be about 4.5 % of the value of the property. For a much smaller building, the closing costs can amount to 8.5% of sales value.

Better financing

Getting a larger loan is relatively easy. They also have lower interest rates. Better still, large loans almost never require personal guarantees probably because the down payment will be high in this case.

More profits

If you do bigger deals, you will make more profits. So, if you are a real estate investor and your goal is to do 100 units per year, doing one or two large deals is much better than doing ten small deals.

However, there are quite a few challenges that you have to overcome before you can do bigger deals.

The biggest obstacle is convincing yourself that you can do it. Bigger deals might involve more work. Sometimes finding a bigger deal itself can be difficult. But remember that one big deal is equal to several small deals. That means you will have to work many times harder to do several small deals.

You will probably also have to overcome some mental blocks. Many people are afraid of doing bigger deals despite knowing that it is more profitable.

Raising capital

Raising capital can be another problem. In order to undertake big deals, you need more money. You will probably have to borrow money. Actually, this is what discourages many investors from pursuing big deals. 

However, if you are confident and do a bit of search, raising money isn't all that difficult. Many private individuals are willing to offer hard money loans. You just need to find someone with a big enough pocket.

Investing in a bigger apartment building is definitely better than investing in a smaller building. Forget about those duplexes and penthouses. Instead, look for buildings with a large number of units. That is what smart investors do.

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Why Lot Size Matters in Real Estate

Buying a home before studying the lot where it is located is never advisable. Many home buyers seem to believe that the lot is not important if the house is good enough to grab attention. Agreed, the lot is merely a piece of land, but in real estate it matters. Here is why:

 The Value Factor       

The value of your lot is often determined by the size of the lots adjacent to it.  So if you are going to buy a lot which is much smaller or bigger than other lots in the neighborhood, you need to realize that its size will have a major impact on its original and resale value. So you might think that bigger lots are more valuable than smaller lots, but this is not always the case. Of course, it is safe to assume that a lot which is larger than adjacent lots will be more valuable.

However, if that extra acreage consists of unusable terrain, the lot could be worth much less than neighboring lots. Interestingly, a smaller lot could be worth more for several reasons including its location, landscaping, views and the size and value of the house built on it. When it comes to corner lots and lots located on a dead end, there are several other factors that could affect the value.

The Size

The relation between lot size and property value is not exactly clear. In fact it tends to be governed by area and neighborhood, rather than anything else. In a city, a lot that measures a quarter acre should be considered as a large lot. When it comes to the suburbs, an acre tends to be the norm for relatively expensive homes.

Large pieces of land that cannot be divided into sub plots rarely increase the price of the house. Consider this example. A lot comes with additional seven or eight acres of land. But if this extra piece of land is undevelopable because it is a rocky land or swamp, it will not enhance the price of the property. It might even turn off some potential buyers because few people are interested in paying property tax on a piece of land that they can't use in any way. In fact, some owners of such unusable lands have dedicated it to the town where they live. By giving away land, they not only reap tax benefits, but also reduce their property taxes.

 

The Position

If you run a business, you will definitely want to purchase a corner lot. These are considered the most desirable locations for shops and businesses. However, when it comes to residential property, corner lots are not exactly popular. Since these lots are more exposed, they might require high fencing or trees for privacy. Families with very young children may prefer Cul-de-sacs or dead ends.

Effect on Lifestyle

Now that you have factored in the price of lots in the community, you need to consider the impact the lot will have on your lifestyle. You need to ask yourself a few questions:

 

Do you think your family will need lots of outdoor space? If your family prefers to spend a lot of time outdoors, you will probably need a larger lot. You also need to remember that the size of the lot may affect the type of landscaping you can have. Your chosen lot should ideally be close to community amenities. You will probably also want to know how far the lot is from the community entrance.

You can view the lot map before buying property in a community. However, if it is possible, drive to the neighborhood and see the lots and homes in person. It will help you make a more informed purchasing decision.