Wednesday, March 21, 2007

Why buy an apartment building?

After my previous blog posting I got a comment that it was not a fit. Here I was writing about the steps in finding and closing escrow on an apartment building, but I was not addressing the issue of why to buy an apartment building in the first place. This came from an attorney who said she owns a small condo and wanted to know why she should even consider buying an apartment building. Her first thoughts were the three “Ts”; tenants, toilets and trash.

When we are small children and people tell us something, it becomes our truth. As adults we are far more suspicious of what we are told, regardless of what it is. When I was a child my mother impressed upon me what a great investment it was to have an apartment building. She said, “The tenants are the ones who buy the building for you.” This was a lady who worked as a bakery clerk earning an hourly wage. She and my dad sold their home when I was 8 years old and used the money as the down payment on a 4-unit building near Beverly Boulevard and Robertson.

My dad died 3 years later and she was able to raise me as a widowed single mom. When she retired she had her social security payments and a union pension. She lived rent-free and received rental income. The total was more than she needed to live on so she was able put money into saving up until the time she died. If a bakery clerk can buy an apartment building, so can this attorney and so can you.

Just like my mother, this attorney has an advantage; she owns a home, or rather owns it with the bank. When my mom died I inherited the building. It’s about a block and a half north of Beverly Hills. They bought it in 1956 for $36,000. While today that wouldn’t be enough for a down payment, my parents were only earning about $4800 per year between the two of them. This attorney had been in her condo for a while and the equity is enough to use as the down payment on a small apartment building. But, and this is very important, but she doesn’t have to do it by herself.

If you do not home a home, you can still buy an apartment building. In the same way Robert Allen writes in his books about buying property with no money down, what he really means is that you buy it without using YOUR money for the down payment. You can get seller financing or find an investor to buy the building with you.

While the Southern California apartment building market is tight, there are still bargains available. It just takes more time and energy to find them. In my last posting I spoke about one of those bargains I found. If you are not prepared to do the work yourself, partner with someone who does this on a regular basis. While I intended to share this project with two other people I now need to do a 1031 tax deferred exchange, so the two friends will have to wait to invest with me later.

Again, you don’t have to do it alone. If you find the property and can’t handle it on your own, call me. With my partners and friends we are always looking for more property. Owning an apartment building creates financial security, it is purchased for you through the rent tenants pay, and you have tax advantages I did not even discuss in this posting.


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