Are you planning on working with investing in multifamily properties? If so, there are many things you must consider in order to make your investment thrive. At Luxe Crowdfunding, we are here to make sure you have access to the best crowdfunding sites for investors. We are available to everyone in the United States.
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As a general rule, the value of any income property is a function of the cash flow it generates. Sometimes investors are willing to pay very high prices (low capitalization rates) because they expect significant ongoing increases in the cash flow of a property, or because the value of the land offers a separate source of value. This is not usually true of apartment buildings; cash flow typically grows over time, but physical and functional obsolescence, and sometimes local rent control, usually cause cash flow growth expectations to remain modest.
Important Things To Consider With Investing in Multifamily Properties
- The area or community in which an apartment complex is located is of prime importance. The regional economic drivers and employment levels are important, but a more detailed study of the particular neighborhood of the property is also essential. Is the area already popular, or at least seeing an upswing in perceived appeal?Are other neighborhood demographics, like the age distribution and average household size, favorable to apartments? Local economic activity is also important.
- Physical plant
- As with any property, the physical state must be assessed to evaluate deferred maintenance items that can materially affect the operation and value of the apartment building. A prospective owner should evaluate the plant’s foundation, roof, heating, and air conditioning systems, electrical, plumbing, elevators, and the building’s “envelope” (the windows and walls).
- Competing supply
- Construction cycles occasionally result in an over-supply of apartment buildings and other commercial properties. An analysis of new construction permits and other housing statistics can provide a feel for whether the property is in a relatively stable market or one where competing properties are shortly due to come on-line.
- Vacancy rates
- Complexes with more than 7-8% vacancy rates tend to be either in an unfavorable market area or in need of renovation or other re-positioning. Sometimes, however, such adverse figures are simply due to poor management. Apartment buildings are management-intensive, and tenant relations, proper maintenance, and the showing and renting of space are key components of the property manager’s responsibilities.
- Value-add opportunities
- Sometimes a smartly chosen remodeling project can markedly boost the attractiveness (and rental rates) of a property. A re-fashioned façade, or the remodeling of kitchens and baths as units become vacant, can oftentimes justify higher rental rates and increased cash flow. Apartment buildings are also often in a position to generate ancillary sources of income.
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