For many renters the subject of the security deposit is somewhat of a touchy subject. Most renters assume they should receive their security deposit back in its entirety as long as there is no significant damage done to the apartment. However, this is rarely true as there are number of factors which contribute to whether or not the security deposit or a portion of the deposit will be returned to the renter when they vacate the premises.

Did You Do Any Heavy Damage?

Certainly doing major damage to the apartment such as putting holes in the walls, breaking appliances or tearing up the flooring may warrant the security deposit being kept but even in these cases the leasing agent must justify these costs. In other words the leasing agent cannot use one damaged item to justify keeping the whole security deposit. Rather the leasing agent is obliged to determine a cost to repair the item. If this figure is sufficiently large to excuse not returning the safety deposit the renter should be informed of the computed value of correcting the flat.

Is Your residence Clean Enough?

All residences should be cleaned completely before the renter leaves the property. This should include extensive cleaning of all rooms of the apartment including the bedrooms, bathrooms and any common areas. A cleaning should also include cleaning of all the blinds in the house. Blinds can be rather hard to clean and many leasing agents charge roughly $10 per blind if they deem there is a requirement to wash these things. This may add up pretty swiftly if there are several windows in the flat.

Many leasing agents also perform a considerable number of standard cleaning functions when any resident leaves the property. This could include items like clearing out the fridge, shampooing the carpet or repainting the walls. When those items are needed, there's usually a charge connected with each item. In many cases, adding up these required fees results in a number which is likely already approaching the sum of the security deposit. Additionally, leasing agents often only allow for one hour of cleaning services to prepare an apartment for the next residents. This isn't sufficient time to finish the work and thus renters wind up being charged a further charge at an hourly rate.

Have You Read Your Contract Documents?

Renters who need to have the best prospect of having a big part of their security deposit reimbursed to them should be really acquainted with their contract documents. This is vital while living in the flat as well as while preparing to leave the residence. It is important to be familiar with the contract terms while living in the apartment because it can prevent the renter from making decorating choices which are explicitly prohibited by the rental agreement. These types of decisions can be costly in the long run because they may result in the renter being assessed for perceived damages by the leasing agent.

Renters should also conscientiously review the contract documents as they're making ready to leave the property. This is significant as it may help the renter to scrub and make repairs to the house as per tenets set out by the leasing agent. Doing this makes it more likely the renter may not be considered unreasonable costs at the finish of the renting agreement.

With the proper apartment building investment strategy, it’s possible to make a very large profit from one deal. It does, however, require a lot of work and possibly a few years to complete.

If you know what you are doing, buying, improving, and then selling an apartment building can be one of the surest ways to make a large profit in real estate. Why? The size of the investment helps. Making a 10% profit on a million-dollar property is more profitable than on a $100,000 house. But it isn't just the size of the deal.

Selling an apartment building isn't like selling a house. For example, if you paint a house, you'll get a little more for it because it looks nice. But you are just guessing at how much value that painting adds. What if you chose a color that isn't popular? How much does a deck raise the value of a house? This is not an easy question to answer.

There is a more predictable formula for raising the value of an apartment building or complex. This is because the buyers are investors, who look at income more than new paint. The formula is simple: raise net income and you increase value.

For example, suppose investors in your area expect a capitalization rate of .08. That means that they expect a net return (before loan payments) of 8% on the purchase price. If your thirty-unit apartment building generates $120,000 net income annually, they'll value it around $1,500,000 ($120,000 divided by .08). If you can get it to generate $160,000, it will be worth $2,000,000.

The strategy then is simple (but perhaps not easy). You find an apartment building that is not being operated efficiently, buy it at a good price, increase its net income, and resell it for a profit. If the increase in income is predictable, the increase in value can be.

An Apartment Building Investment Example

Suppose you find a 40-unit apartment building for sale. They are all 2-bedroom units renting for an average of $600, which is below the $675 average for the area. The vacancy rate has been at 10% for the last year, above the 3% rate that is more common for the area. You decide that this is because the place is a bit run-down, and the management company isn't very quick about getting new tenants in.

There is a community room that is dirty and generally unused. There are no laundry machines, so tenants have to go eight blocks to the laundry mat. There are only a couple places that rent this cheap in town, and there are many that get $750 or more for two bedroom apartments. You can see that there is potential for improvement and higher rents here.

The gross income for the previous year was $259,000, and all expenses other than loan payments, came to $75,000. That makes the net income before debt service $184,000. Based on the prevailing cap rate in the area of .08, the value is around $2,300,000. ($184,000 divided by .08). You have been shopping not just for apartment buildings, though, but also for motivated sellers. This seller is only asking $2,000,000, and accepts your offer of $1,850,000.

The first thing you do - before you even close on the deal - is make a list of every possible way to reduce the expenses and increase the income. As soon as you close the deal, you go to work.

Cleaning the property up and doing some minor landscaping costs just $1,000 or so. You have $2,000 worth of painting done as well.

The community room is cleaned up, and you install video games for the kids. They are provided by a amusement company at no cost to you, and you get half of the income.

The other side of the community room becomes a laundry room. Again, you opt for an arrangement that gives you half of the income without any investment in machines a on your part. It does cost you $9,000 to have the room plumbed and wired for the washers and dryers, however.

You allow a beverage company to put a pop machine in the community room for 40% of the gross income.

You spend $13,000 for ten small storage sheds and rent them out to tenants for $35 per month.

You spend $52,000 for several carports that will provide one space for each tenant.

You replace every outdoor light with low-watt fluorescent bulbs, for a few hundred dollars.

You replace the inefficient heater for the hallways with one that will cut your gas bill by 30%. It costs you $6,500.

You add fire extinguishers and make other minor changes to get a better insurance rate. This cost a few thousand dollars.

You fire the management company and hire a better one for the same rate.

Tenants are surveyed and repairs and improvement are made as needed or desired by tenants. This costs another $32,000.

The tenants, of course, were told there would be improvements. They were also notified that a rent increase was necessary to pay for these, but that rent would be close to that of similar apartment buildings. As the leases are up, you increase rents. You simultaneously start promoting the building as one of the nicest in the area, to fill those empty apartments.

By the following year most of the apartments are renting for $700. With the notice of the rent increase sent to tenants, you included an information sheet showing the rates at other apartment buildings, emphasizing the ones that were charging $750 or more. Only a few tenants leave because of the higher rent. All of the tenants have a nicer place to live. Moving is a lot of trouble and expense just to go to a place that is not as nice in order to save maybe $50 per month.

You keep the place for another year before trying to sell it. This is so that all of the changes in income and expenses will be fully reflected in the books for a full year. Your improvements cost around $120,000. Add this to the original purchase price and closing costs, and you have right around 2 million dollars into the project.

What does that net income look like now?

Your new and improved apartment building is now 98% occupied. With rent averaging $700 per month per unit, the total gross income from rent for the previous year was $329,000.

Your share of the laundry machine income was $2,400.

The storage sheds were mostly occupied, and brought in $3,800.

The income from the video games and pop machine in the community room was $1800.

Total gross income, then, is $337,000.

With the new heater and other changes, you reduced annual expenses to $65,000.
That makes the net income before debt service $272,000.

At a .08 cap rate, the value of the apartment building is now about 3.4 million dollars. Because it is in such perfect shape, however, you list it for sale at 3.7 million dollars, and by the end of the third year it sells for 3,500,000. Sale's commission and closing costs total almost $200,000. Since you had about 2,000,000 into the property, you have a profit of 1.3 million dollars.

Even if you (or your partners) invested $500,000 originally, that's a great return for three years. It is also a taxable capital gain, unless you roll it into another investment property. Another alternative is to keep the property, now that it is probably (depending on the terms of the financing) generating cash flow after debt service of about $172,000 per year. That's not a bad return either.

The most important point of this apartment building investment strategy is to that you make changes that raise the net income. To make the most efficient changes, you have to learn how to do the all important real estate math. However, That is a subject for another article.