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Apartment
For Sell
Steps
before you buy an apartment:
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Buy
properties that will have positive cash flow from the start,
based on the current income and all of your projected
expenses including management. If the current owner doesn't
have management, that is his problem. You are an investor,
not a manager, and a good income property should pay for
management and still produce positive cash flow.
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Do
your due diligence? Here's a simple definition of the term:
"Investigation and verification of the details of a
particular investment." You can start this process
before you make an offer, but you should also have clauses
in the offer that allow you to have inspections done, and
reviews of the books and certain documents.
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Look
at the files, to verify income. There should be rental
agreements signed by tenants, and rental histories showing
if there are any problem tenants or late payments. Look for
rental deposit documents also, to see amounts and where the
deposits are kept.
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Ask
to see service contracts and agreements. Do they transfer,
or are you free to seek better deals? These can include
property management agreements, landscaping, snow plowing,
pool cleaning service, and cooling system maintenance
agreements.
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Get
the last 24 months income and expense statements, and look
for anything unusual, like expenses that are too low or
income that seems too high. Review the rent roll, and find
out if the rents are over or under the market rates for the
area. If there are employees, look at the payroll records
for any surprises, like accrued vacation time that you'll
have to pay.
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Do
an interior inspection to learn about the place, the
tenants, and any problems that you will have to fix in the
coming months or years. Look for pests, water and fire
damage, as well as obvious "problem tenants." Are
there any empty apartments that are listed as occupied? Use
professional inspectors as needed for pest inspections and
safety inspections. The local Fire Marshall may do a free
inspection to verify that the building meets current codes.
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For
the exterior inspection, you will want to first walk around
and take notes. Watch for anything that looks unusual or in
need of repair. Then you can get professional inspections,
if necessary. You want to verify that the electrical and
plumbing systems are up to date and meet current codes. You
also want to get an estimate on how many years of use the
roofing has left. You'll look at driveways, landscaping, and
exterior paint condition.
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