19 Mar How to Determine If a Multifamily Property Is a Good Investment
There are several ways that you measure how successful a specific multifamily property investment is likely to be. You could look at the rental growth rates and the vacancy occupancy rates to determine how well a particular rental property is doing currently, but these numbers won’t show you how well this specific property will perform in the future. You could also choose to only purchase multifamily real estate properties in the coastal markets, or the markets that are currently producing a lot of ROI. This however, will have you competing against every other investor in the country for properties that may not be worth what you will pay for them or necessarily produce long term gains in the future. You don’t want to look at things like occupancy rates, rental growth rates or how attractive the location of the property is if you want to accurately gauge the investment value of the property. To truly determine if a particular multifamily investment property is worth your time look at the top 4 components of a top commercial rental investment.
1. Excellent Population Growth
The best places to locate good multifamily investment properties are locations that show very strong growths in population. There are few things that generate interest in rental properties like an exploding population. Locations that have a significant influx of new residents are the best places to buy commercial real estate. The reason behind a location’s population boom is something to consider however. The best locations are ones that are gaining population through migration or the creation of new households. Places where new people are joining existing households are not as useful to the commercial property investor.
2. Residents Who Are Young and Mobile
Locations with greater numbers of young and mobile residents are better for rental property owners, as younger people tend to rent homes more than they buy them.
3. Locations With Expanding Employers
When a large company expands its employment base, more young and mobile residents move into that location. This makes the commercial rental properties in this area more valuable to investors. Smart investors put their money into markets that show strong rising trends in employers and job growth. Look for regions with above average growth in employment, or locations where very large employers are setting up shop. Odds are these large companies will bring in a lot of new residents, who will all need an apartment to rent.
4. Specific Submarkets
Most commercial housing investors look for markets that are either classified as high barrier, meaning that it is difficult to find a rental apartment for the renter (think New York City) or markets that are easy to find a rental property (like Texas). However, if you take the time to find a very specific submarket in an easy to get into area, you could find the jackpot for commercial real estate in that area. For example, most parts of Texas are easy to find a rental apartment, except a very few sections that are considered to be newly developed high end markets. These high barrier locations in easy market areas make good commercial real estate investment choices.