Are you considering using a fix and flip loan for an apartment? If so, it’s essential that you develop a strategy first to ensure you are able to pay this loan off as soon as you can. Here, you can learn more about finding and utilizing the right deals, along with what you need to know to correctly value an apartment, while utilizing the various income increasing strategies to help you maximize the overall value of the apartment property that you purchase so that you are able to easily earn a profit and pay of your loan’s balance.
Before taking out a loan to flip an apartment successfully, it’s important to find the right property.
The process of finding the right apartment properties to flip is somewhat challenging. The majority of apartment buildings are being sold off-market. After all, landlords don’t want to alert their tenants to any potential changes in the ownership of the building, and as a result, they avoid posting a listing of the property for sale. Therefore, to find these apartment properties that are for sale, you should contact local real estate brokers. These individuals can let you know what properties are available.
Once you find the possible property that you can flip, you need to make sure you consider the following:
- Is the property in extremely dilapidated condition? Is there a need for physical improvements right away? If you are able, make the improvements needed, and then you can immediately increase the value of the property and resell it to earn a profit.
- Think about any outside factors that may increase the value of the property in the near future. For example, are there any new public amenities such as schools or hospitals ready to be constructed nearby? If yes, then you may not have to spend too much of your own money to see the value of the property appreciate.
The primary difference in flipping an apartment versus a typical, single-family home is the valuation. Most residential properties are going to be valued on comparable sales, which limits the possible returns earned from the residential flips. With a commercial property, such as apartments, the income generated by the property will determine the value. As a result, the possible returns from an apartment renovation may be quite large, based on how much you can raise from the property.
When it is time for you to value an apartment building, the value is typically set based on the current market cap rate and then divided by the revenue generated each year from the property. If you have an apartment that is earning $120,000 in income each year, and the current cap rate is approximately five percent, then the outcome is going to be $2.4 million dollars. While the nuances of this particular valuation process aren’t covered here, it gives you a general idea.
Before you take out any loan, it is important to know how you are going to pay it off. It’s also important that you can earn a profit by resulting in the property’s value to appreciate as fast as it can. When you are dealing with apartments, what is the fastest way for you to increase the value of your property? Raise the rent.
Raising rents that are exceptionally low is a great way to start and one of the most affordable and fastest ways for you to increase the value of your apartment, which is going to help you quickly repay the loan.