As Class C to B apartment investors, we believe now more than ever multifamily apartment properties are the most profitable long-term real estate investment. However, it is important to dig deep when evaluating an opportunity in order to find the most profitable properties. In this series we’ll highlight five things to consider before making a purchasing decision on any multifamily apartment property.
Who are the renters? Working-class individuals have traditionally been a mainstay of apartment living, but we now have to consider the millennial generation, consisting of 85 million U.S. citizens born between 1977 and 1996. Whether due to student debt or the delay in starting a family, this large segment of the population is a big factor in the increasing demand for apartments nationwide.
Brand New Blues
In response to the growing number of people who prefer to rent rather than buy a home, new, shiny apartment communities are being built in cities across the nation. However, a recent survey done by RealPage found that retention rates for these upscale buildings tend to be low, with less than half of the tenants opting to stay when their lease expires. Such turnover results in high expenditures for marketing and unit make-ready in order to attract new tenants. In short, net operating income is low if vacancies are high.
Value Add Plays
Older complexes are often undervalued or overlooked by institutional buyers due to the significant investment in time and resources required to reposition the property. A smart investor will see the opportunity here, since by investing in the right kinds of upgrades and addressing maintenance and safety issues, these buildings can yield greater returns, significant NOI growth and overall capital appreciation.
B’s and C’s
With minimal investment in upgrades and amenities, the older class-B and -C complexes can attract a wide demographic, including working-class individuals and millennials. For one thing, they are generally located in established middle-income neighborhoods. In addition, these apartment complexes are essentially recession-proof, which is important for tenant retention when the national economy is in a downturn.
Many of these older units suffer from absentee ownership, misalignment between owner and property manager or unsophisticated owners/operators who lack professionalism and an institutional approach. Simply upgrading the units is not enough to improve value; professional property management is essential to protecting your investment. These days, that means more than simply keeping the property clean and attractive, although those things are important; it also means working to make your tenants feel like part of a community. That takes an experienced, professional management team.
Are you interested in learning more about creating turnkey passive income and generational wealth through multifamily apartment investing? Visit www.syndicationcapital.net for more information, resources, frequently asked investor questions and our free e-book: How to Passively Invest In Multifamily Apartment Syndications.