Real estate is a prime investment niche – there’s always demand for housing, and multifamily properties tend to be especially profitable. There’s no one size fits all approach to investment, however, so it’s vital you pick an angle that matches your skills with your community’s needs.
Here’s what you need to know about current market trends to thrive in a crowded marketplace.
Luxury Versus Affordability
There are two major segments to the apartment market: affordable units and luxury apartments. Recently, though, there’s been a real growth in the luxury sector, with developers focusing primarily on new luxury construction. But why? This is the real question, but most of the answers are self-evident. In particular, it makes sense to invest in new luxury developments because apartments are, without question, expensive to build. Luxury apartments offer a greater return on investment per unit than their affordable counterparts. Developers want to get the most bang for their buck.
On the other hand, investors need to be attentive to the growing affordability crisis spreading across the United States. Experts estimate that we need 4.6 million new affordable apartments by 2030 to meet consumer demand. That estimate may be on the low end since half of all renters today spend 30% of their income on housing, while 12 million spend more than 50% of their income on housing, far beyond what would be considered affordable.
Building On Loan Value
Returning to the idea of return on investment as it applies to multifamily real estate investment, it’s important that we consider the issue of risk. Luxury apartments may be more profitable – if you can rent them – but it’s not that simple.
If you’re going through the loan application process as detailed by Assets America in order to obtain loans for apartment buildings, it’s important to assess other risk factors that could impact your investment. For example, if you’re investing in an area with high-demand for affordable housing, you might not expect serious rental income growth, but you can be sure that your property will probably remain steadily at capacity; you may even have a waiting list. That’s a low-risk investment and you likely won’t even have to put much money into marketing because of the affordable housing crisis. You’ll need to be well-informed about your investment prospects in order to make the best case on your loan application.
Conversely, with so much luxury housing being built, demand is declining, and this will also impact your loan application. The fact is that everyone who can afford luxury real estate likely already has an apartment, and investors will need to invest heavily in branding, including customer engagement and brand image, in order to compete with other high-end properties. Good branding can raise property value, but market saturation can make it a risky investment.
Finding The Middle Ground
So what’s next for real estate investors? The answer may be some middle ground between luxury and affordability – properties that serve the needs of the middle class. This is a group that demands a certain number of amenities, as the real estate market is in the midst of an amenities arms race, but they tend to prioritize different benefits than wealthier tenants might. Think, for example, access to an onsite co working space, as opposed to a movie theater, or more storage rather than a high-end gym. These amenities are a selling point, but they’re not as costly or as ostentatious as what many top-of-the-line luxury properties offer.
Across the board, “luxury” is often just a real estate term of art, a way to sell outside the basic affordability niche. Right now, too many investors are trying to straddle the line between mid-market and real luxury. Determining who is under-served in your region is sure to cut risk and increase profits. That’s where to invest for real growth potential.
Article Submitted By Community Writer
