Apartment Cap Rates Get Lower

The United States has seen cap rates for multifamily assets drop continually. In prime cities around the country, the push to buy these properties is increasing. A Jones Lang LaSalle/RealShare Apartments Outlook 2012 Survey at the recent Apartments 2011 conference found that the demand for multifamily is increasing. “While development isn't coming back in a lot of real estate sectors, it is happening in multifamily,” says Bill Montgomery, President, Acquisitions & Investment of Sares-Regis. But that comes with increased costs. About 63% of respondents say construction costs increased by 5% over the last year.

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How-To Guide for commercial and multifamily real estate

A How-To guide for investments in commercial and multifamily real estate is available by the Institute of Real Estate Management. Many subjects are discussed, including: property management, finance, marketing and brokerage through development, asset management, maintenance services and facilities management. The book is intended for the audience of those thinking of entering the real estate field, as well as those already in the field seeking help.

See the How-to guide here

Third quarter numbers looking good

Looking at the most recent job numbers, things are looking good for the multifamily real estate market. With new job creation and a continued unstable housing market, strong performance still remains in the national apartment sector. Vacancy rate has decreased drastically to just 5.6%, which is lower than it was at the start of the recession. Demand has significantly increased as an additional 118,000 rentals have been occupied in 2011.

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Which Amenities Do Renters Look For Most Often?

Real estate investors who own an apartment building want to make their units the most desirable rentals in their market. A recent analysis of data from actual renters provided valuable information on the most sought-after amenities for apartment living.

• A dishwasher was the top priority; especially when in a convenient kitchen that also included a garbage disposal, microwave, trash compactor, self-cleaning oven and stove, and a refrigerator/freezer with an ice-maker.
• Either a washer and dryer in the unit, or a residents-only laundry room in the building.
• Pets of all sizes and types – especially large dogs ­­– being welcomed is considered an extremely desirable amenity.
• Renters with children listed a playground as their top priority.
• Garages or covered parking are important, especially in areas with rainy or snowy seasons. Also in cooler climates a fireplace is a preferred amenity. In warmer climates, an outdoor fireplace or fire pit is a highly valued item. However, air conditioners are coveted in all climates.
• Many renters place a great value on an in-house spa and/or fitness and exercise room. A swimming pool in the building or a nearby community pool is also a good draw.
• Apartment dwellers appreciate “free utilities” even if they result in slightly higher monthly rent.

Technology is a large part of our everyday lives, and it can also be an offered amenity that will bring in qualified renters who tend to become long-term residents.

• The option to pay rent by credit card is important to people who are focused on earning points, airline miles, or cash back from purchases. Also desired is the ability to pay rent through automatic electronic payments.
• In this age of technology, wireless internet access and cable or satellite television hookups are almost a mandatory amenity.

Security is a major concern, and a safe building will be very appealing. Dead bolts and peep holes for each unit door and key-card access or monitored exterior doors are terrific amenities to offer potential renters. Include additional lighting around outside doors and parking areas. Making potential renters feel safe and pampered will have them jumping at the chance to live in your building.

What to Look for in an Apartment Building Investment?

Investing in an apartment building can be a very profitable venture – if you find a building for the right price, with good potential cash flow and in a good investment location. If the location is not desirable, it won’t matter if you have the nicest building on the block or offer the most amenities for the lowest rents.Investment location tips:

• Visit the building at several different times during the day and night.
• Observe traffic during rush hours; renters won’t want a difficult commute to work.
• At night, how well lighted is the area directly around the building? Are the streets and parking lots well lit?
• During the day, are children playing outside or people walking their dogs?
• Visit the nearest police department and ask for information concerning any criminal activity in the area, particularly any directly involving the building.
• Drive around the neighborhood and observe the condition of other apartment buildings or homes. Be sure to observe a fairly large area in all directions from the investment location.
• Are there a lot of “for rent” signs?
• Are the properties well maintained or run-down and in need of repairs?
• Is there an abundance of old abandoned cars or junk in the yards
• If you feel comfortable doing so, stop and talk people in the neighborhood.
• As you drive through the neighborhood also pay attention to the local businesses.
• Are there strip malls that are mostly vacant?
• Is there a grocery store nearby? Medical facility? Park or recreation center? Churches?
• Eat at local restaurants and ask the staff about the area.
• Evaluate the investment location by potential renters:
  • For families, check out the schools
  • For working singles or couples, is there easy access to public transportation?
  • If there is a college or university campus nearby, it may be easy to rent apartments during the school year but you may have a high vacancy rate during summer months
  • Medical facilities in the area may provide a good source of steady, year-round renters.
• Read neighborhood newspapers; pay attention to the business section or “crime report” listings.

An apartment building in a good investment location will support higher rents which produce better cash flow.

Should You Do a Thorough Background Check on Possible Tenants?

Ask anyone who has been a landlord any length of time and they will have a story about a nightmare tenant they wish they'd never met. The stories can range from a noisy pet to a meth-lab in an apartment kitchen. A thorough background check, along with an observant landlord, can reduce problem tenants.

Resident screening should begin with the first contact; often a telephone call. This is a landlord’s first opportunity to eliminate less-than-desirable tenants. If the telephone interview meets your requirements, set up a time for the prospective resident to see the property. While showing the property, take notice of the applicant’s appearance and demeanor. A person who looks and dresses messily may keep their home in the same condition. If a person is overly nervous, distracted, or disrespectful they may not be the ideal tenant.

If the prospective tenant passes both appraisals, ask them to fill out a rental application form and a release of information statement. This will provide the necessary permission to check the applicant’s background.

A background check will provide:

• A credit report from a major reporting bureau. showing if the applicant tends to pay bills on time or not. This report will also show any judgments, evictions, collection actions, and/or bankruptcies.
  
• Any criminal history found in public records from state, county, or federal courts. The sexual offender databases should be checked, as well as the Patriot Act database.
  
• Professional and/or business licenses for self-employed applicants.
  
• Details on any law suits, litigations, mechanic’s liens, or tax liens from federal or state records.
  
• Verification of current employment, driver’s license, and driving record.
  
• Information from supplied references, former employees and/or co-workers, former neighbors, family and friends.
  

A thorough resident screening can be time-consuming and may involve some expense; but is well-worth the effort. A landlord may opt to do this research themselves or hire an outside service. If you decide to hire a screening service, find one with a large network of connections to local and national databases and offering quick turnaround. Resident screening may keep you from having a tenant-nightmare story of your very own.

Adding Amenities Adds to the Value of Your Apartment Rentals

Apartment renters are looking for essentially the same things home buyers want. There are three basic “wants” when selecting an apartment – location, floor plans, and an attractive price. As a savvy real estate investor, you already understand the importance of a desirable neighborhood. And you already understand the importance of researching area rents and pricing your units accordingly.

In order to attract the best tenants and turn them into long-term residents, your apartments need to be better than your competition; you need to offer something extra. But short of removing walls and enlarging rooms, what can you do to add value to your rentals?

Adding Amenities will Increase the Value and Desirability of Your Apartments:

• Extra security will be your best attraction. Each apartment door needs a peep hole and a dead bolt. Fit all outside entrances with key card access-only locks. Add extra lighting around outside doors. Place windows on either side of exterior doors so residents can see who or what is on the other side of the door. Consider hiring a security guard or doorman. Be sure there are sufficient smoke detectors, CO2 detectors, and alarms throughout the building.
• Laundry facilities are another big attraction. Consider adding a washer and dryer in each unit; stackables work nicely. Or add a residents-only laundry room within the building. This room could be a key-card access area.
• Covered and secure parking is also a big plus for apartment renters. This is particularly attractive in an area with a lot of rain or snow.
• An on-site manager and/or handy-man will attract renters.
• Expensive amenities such as swimming pools, on-site day-care centers, exercise facilities, and game rooms are highly sought-after features.
• But, smaller and less expensive amenities are also appreciated. Considering adding a ceiling fan and light combination in each bedroom and dining or living room. Make these remote-controlled units and prospective tenants will love them.

It is a good idea to visit your competition and find out what amenities are being offered in other buildings. You will want to try to match, or exceed, as many of these added features as possible.