A foreclosure of any kind offers an investment opportunity for those with the necessary financing. Foreclosed properties come with built-in equity, as the property will be listed at or below market value. Apartment complexes offer the additional bonus of monthly revenue for minimal active management. Although there are risks involved in buying a foreclosed property, the savvy investor can get a deal on a property that can provide income for years to come.
Contact a real estate agent who specializes in apartment complexes. Competent real estate agencies know a great deal about their area. They will be able to point you toward apartment complexes that are in foreclosure or that are likely to go into foreclosure in the near future. Alternatively, you can search for foreclosed apartment complexes online.
Look for real estate owned -- or REO -- properties. These are properties that are under foreclosure and owned by a bank. They offer clear titles and access to current inspection information, providing much more safety for you than properties that are sold at state auction, which typically cannot provide title insurance or current inspection.
Hire a real estate attorney to help you navigate this process. Although having an attorney is not required for you to purchase a foreclosed apartment complex, doing so should ensure you are aware of and compliant with all requirements and deadlines during the purchase period.
Review the financial records of the apartment complex you are considering. Identify the annual operating expenses, the average occupancy rate, and the condition of the buildings.
Perform due diligence on the property. Due diligence timelines are negotiated between the seller and the buyer. A standard time frame for due diligence is seven days for the seller to provide any required disclosures or reports, and 17 days for the buyer to complete inspections and obtain financing. If either party is unable to complete their diligence requirements during the specified period, they can negotiate for more time with the other party.
Arrange for financing. As with all investment properties, you can expect the lender to require a down payment in the range of 20 percent to 25 percent. Because banks are interested in moving foreclosures as quickly as possible, you will have some negotiating power. Ask for money toward closing, as you can usually get the bank to contribute between 3 percent and 6 percent toward closing costs.
Hire a property manager to run the day-to-day operations at the apartment complex. If the apartment complex still has active management, you may be able to retain the staff, saving you the time and hassle of interviewing and hiring new management.
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