How to Buy an Apartment Building

This is my story about how I bought a 12-unit apartment building with money raised from private individuals.

This deal closed against all odds and then nearly bankrupted me.

Don’t make the same mistakes I did and learn how to raise money to buy your first apartment building.

Finding the Property

One day in March 2011 an email came in from real estate investor friend (we’ll call him “Frank”) who learned of a 12-unit apartment building in NE Washington DC. Even though I get the vast majority of deals through my brokers, every once in a while there’s an exception

My investor friend positioned the deal as a rehab flip (i.e. buying it, fixing it up, and selling it for a profit), which is what I also do occasionally.

Another investor he knew (“Richard”) had it under contract. The seller was asking $500,000. Frank had a marketing agreement in place with Richard that if he referred a buyer, he would be paid a marketing fee (nice, huh?).

I ran the sample rent roll he sent me through my deal analyzer software and quickly realized that there might be an opportunity. The deal itself worked OK, but my gut was telling me that $500 for a 1-bedroom, even in NE WashingtonDC, seemed low. I confirmed this with some quick rent comps on rentometer.com. I then asked Frank for an introduction to Richard, who was looking to assign the contract to an ultimate buyer (maybe me?) for a fee.

After speaking with Richard, I still liked the deal, but there were issues with the building (there always are, aren’t there?) It had been listed at $650,000 and had been on the market for over a year. Even though buildings like this are selling for around $900,000, the rents are so under market that buyers couldn’t justify a …read more