Apartment building ownership: Who gets paid?
One of the things that we commonly observe in the apartment building market are broker listings that state “potential revenue.” What this really means is that the rents in place are not up to market standards. A new buyer can purchase this property and slowly increase the rents as tenants leave, thus increasing the value of the building.
To put this into perspective, here is an example. Let’s assume that a building that generates $100,000 in net income would receive a bank evaluation of approximately $1.667 million in today’s market. However, if the same building were to generate $110,000, the bank would value the property at $1.833 million.
Submitting an asking price of $1.85 million and informing potential buyers that there is potential in the rents is a strategy that may backfire. If the buyer is working to increase the rents, they would want to ensure that they are getting a good return on their investment. This is why owners must ensure that the rents are in line with the market average.
A portfolio of apartment buildings can potentially produce a good revenue stream, but just as is the case with any large-scale real estate purchase, buyers must do their research and observe market trends before closing any deals. A combination of proper research and assistance from a trusted real estate professional can help you find a property that suits your needs