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Multi-Family Tips
Sometimes finding the
right location is the hardest task to accomplish. Luckily, Prudential
Commercial Real Estate offers access to view unlimited aerial locations
to better suit buyer and seller needs. The link below will help:
Apartments are a basic necessity! Economics,
or affordability of housing, forces many to rent. This creates the
broadest and most competitive marketplace in the Commercial/Investment
field. There are more apartment buildings than all office, retail,
and industrial properties combined. The continued volume of building
permits indicates that strong multifamily construction will continue.
Present economics of housing indicate that demand for apartments
will not only continue to be strong but will probably increase,
and that the value of existing properties should increase markedly.
Types of Apartment Buildings
- Garden
Apartments: One- and two-story buildings; often a courtyard
or single family-type setting; wide range of units.
- Walk-Up
Apartments: Three- to five-story buildings, but no elevator;
area may be mixed single and multifamily; usually only two
or three different types of units.
- Mid-Rise
Apartments: Six to ten stories serviced by elevators; usually
inner city or dense suburbs; limited range of unit types.
- High-Rise
Apartments: In excess of ten story buildings; underground
parking and security; full service; standard plan with limited
unit types.
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Factors Affecting Apartment Investors
- Generally
speaking, apartment buildings can be leveraged to a higher
degree as compared to other commercial properties.
- The
tax shelter benefits have been favored, and though investors
usually do not purchase apartments solely for the inherent
tax benefits, they do see the tax shelter benefits as a
great plus.
- Real
Estate has never been considered a liquid asset; and prior
to the mid-1980s, apartments were usually more liquid than
other real estate vehicles. In the late 1980s the apartment
market slowed as a result of the loss of favored tax treatment.
After a period of adjustment, they are regaining popularity.
The resale market is generally good.
- Less
sophistication is required to own and operate.
- Broad
rental markets. A utilitarian demand exists because people
need places to live.
- Variety
of apartment sizes and prices allows various types of investors
to enter the apartment ownership market. From "Ma's
and Pa's" to major corporations and pension funds --
all own apartment buildings.
- Responsiveness
to entrepreneurial efforts. Unlike other real estate vehicles,
apartment building value determinants (occupancy, income,
expenses, financing, etc.) can be impacted by the owner,
and it is easier to do (as opposed to an office building
where major tenants have long-term leases which cannot be
re-negotiated until the end of the lease period).
- Professional
management is usually available, but at a cost.
- Unit
mix. This must be matched to the demographics of the area
(i.e., studio apartments are less likely to succeed in a
family area).
- Not
having key or anchor tenants may be an advantage.
- Exposure
to government regulations (primarily rent control).
- Institutional
and seller financing availability.
- Elements
that contribute to a good apartment location are: visibility
and close proximity to major highways, labor, transportation,
shopping, and residential housing tracts.
- Pricing
apartment buildings involves the use of the gross-rent multiplier,
price per square foot, price per unit (CPU), and capitalization
rate as "rules of thumb" or value measurers.
- Property
condition. Deferred maintenance can be extremely costly
and detrimental to achieving investment objectives.
- Ratio
of land to improvements affects the amount available for
depreciation, and this affects the tax benefits associated
with the property.
- Master
metered. If the owner is required to pay utilities, it will
substantially affect the expenses connected with the property.
- Vacancy.
In general, this will reflect the physical appeal of the
property, in addition to the number of units on the market,
and whether or not rents are in line with competition.
- Parking.
Both the condition and number of spaces available, as well
as the type (covered, carports, open).
- Furnished
vs. unfurnished affects the rental schedule and amount of
depreciation available.
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