OK, you’ve introduced another investing niche, apartments. This is considered multifamily residential, and is a different niche than single family residential. Financing and negotiations, etc., are unique to each. Different vocabulary.
Here’s a link that could be a good start for understanding leverage and using other people’s money, which is exactly what borrowing from a bank is.
While you’re investigating this concept, you can begin to determine if you’re wanting to invest for cash flow, or appreciation, or a combination of the two.
Here’s some extreme examples:
Cash flow investing: Ghetto-houses with high maintenance and heavy management and virtually no appreciation.
Appreciation investing: Newer, starter-homes with virtually no cash flow, lower maintenance, and relatively easy management.
And then there’s merchandising. For example, wholesaling, rehabbing, flipping/assigning deals of various sorts. This is not technically considered investing, per se. That’s just working in real estate.
Either way, you need to become familiar with your market. This includes knowing the values of a house and its respective rent.
Your biggest challenge will be finding deals.
As an aside, you should assume a 50% overhead on any rental house you invest in. Of course, you can donate your time and money to the maintenance and management of a given house, and lower the cash outlay, but that’s not a savings, that’s just a transfer of liability from your tenant to you.
After all, it’s the tenant’s rent that is supposed to cover all expenses, not you. And that’s why if your debt service exceeds 50% of your rental income, you can expect to donate time and money to the cause.
That said, limiting your debt service to 50% of your rental income can be HARD. Each niche will require different solutions to achieving that.
Except that, investing during certain market cycles, some speculators expect high appreciation/inflation upticks and thus absorb/ignore the negative cash flow, as part of the cost of doing business.
Sure, there was $10,000 in negative cash flow, but there was also $150,000 in appreciation during the holding period. So, what?
Of course, there’s several profit points to be considered for each investment, and you won’t necessary get all of them, but each investment can target one or more of these profit centers and be considered a “good investment.”
Appreciation (which can be influenced any number of things).
Rental demand (rent increases).
Recognizing a deal is the first step. Finding, negotiating, and closing on the deal is the second step. And whatever is your exit strategy, is the third step.
You’ll run out of cash at some point. Then what? That’s when you’ll learn the importance of leverage.
I’ve got a report I stole from Robert Allen that lists 50 leveraging strategies. PM me, and I’ll forward it to you.
So, go find a deal.