Commercial real estate investors may add multi-family apartment property to their investment portfolio to provide a stable revenue stream with upside potential. As millennials enter the workforce and need a place to live, they are frequently burdened with college debt, little money for down payments and an uncertainty related to how long they will be working at their first job. People will always need a place to live and apartments offer an affordable option. However, it is important to have an objective understanding of this type of acquisition before making the investment.
The foundation of a good investment is due diligence. It is important that you fully research each and every step in the process. The property could have liens that have not been removed, pending legal claims against it from tenants, government agencies or others, or be listed as collateral for other properties. Investors should have a good understanding of the rental revenue and expenses to operate the property. Perform a professional property condition assessment (PCA) to understand the physical condition of the building systems and structure of the property. Working with an experienced commercial broker can help identify any problems and consider resolutions before making the investment.
Managing an apartment complex is a full-time job. Investors often delegate this responsibility to a property management firm that is responsible for communicating with tenants, collecting payments, handling repair requests, leasing, and resolving issues between Landlord and Tenants. It is important for commercial investors to carefully vet property management firms and compare them to each other. A commercial broker has relationships with various property management firms and can help identify an appropriate firm who can properly manage your property effectively.
One of the biggest concerns that investors have regarding investing in multi-family is the potential legal issues that can arise. When dealing with a single property, the investor may quickly sell the property and move on. However, with an apartment complex, the investor will have a continuing relationship with tenants. Some tenants may get behind on rent. Others may refuse to pay rent. Tenants may make claims against the landlord for not repairing the property or not meeting other contractual obligations. It may become necessary to evict tenants, which may require judicial intervention. Working with legal professionals prior to purchasing can help head off potential issues.
One of the most important considerations for owning multi-family apartment buildings is determining the proper rental rates. These rates may vary considerably from one complex to the next. Rental rates consider various factors, including the neighborhood, amenities, proximity to transportation and other landmarks, and the local job market. Sophisticated computer programs are able to evaluate real time data and set the current rental rate for your property each and every hour. In this way, you are always renting at the optimal rental rate for your market. A commercial broker who is familiar with various neighborhoods can provide insight so that property owners can offer real-time pricing to tenants.
There is often a lot of competition for tenants in various markets. Apartment complexes must try to stand out from others to attract tenants and motivate them to live at their complex instead of another property. Determining the amenity that sets your property above the completion is important. Do you need to install a dog park, swimming pool, outdoor bar-b-ques, patio, etc. Working with a commercial broker experienced in the local market can help commercial real estate investors gain a competitive advantage in the market.
If you are interested in learning more, please contact me at Arthur.Nachman@longandfoster.com or call me at (703) 864-2900.