Investing in an Apartment Building

apartment building

This is a good time to invest in an apartment building for rent. Many young families and individuals cannot afford to buy homes because of surging prices and high competition. Data released by the U.S. Census Bureau show that the median price of new houses in April 2021 was $372,400 and the average price was $435,400. Demand is so high that the National Association of Realtors (NAR) reports that houses stayed on listings for typically 17 days in April when it was 18 days in March and 27 days in April last year. Buyers who can afford it offer higher down payments or even buy in cash. People who cannot compete in this housing market have no choice but to rent.

The Current Rental Market

According to the 2021 Rent Report of Apartment Guide released in May 2021, the national average apartment rent prices were $2,069 for a three-bedroom unit, $1,934 for a two-bedroom unit, $1,663 for a one-bedroom unit, and $1,630 for a studio. Two-bedroom units had the highest year-on-year increase at five percent, followed by one-bedroom units at 4.4 percent, and three-bedroom units at 4.1 percent. Rental for studio units decreased by two percent.

Rentals for two-bedroom units had the highest year-on-year increases in Las Vegas, Nevada at 45.6 percent; Buffalo, New York at 41.8 percent; Scottsdale, Arizona at 36.8 percent; Detroit, Michigan at 31.4 percent; Tucson, Arizona at 28.8 percent; Arlington, Texas at 27 percent; Virginia Beach, Virginia at 24.6 percent; Orlando, Florida at 23.6 percent; Henderson, Nevada at 22.1 percent; and Sacramento, California at 21.2 percent. It will not be good to invest where there were the largest year-on-year decreases such as in Seattle, Washington down 26.3 percent; Miami, Florida down 20.5 percent; Philadelphia, Pennsylvania down 20.3 percent; Lexington, Kentucky down 17.7 percent; San Jose, California down 14.7 percent; Fort Wayne, Indiana down 14.5 percent; San Antonio, Texas down 14.2 percent; Fort Worth, Texas down 14.1 percent; St. Petersburg, Florida down 12.8 percent; and Garland, Texas down 12.7 percent.

For one-bedroom apartments, the highest year-on-year increase was in Las Vegas, Nevada at 44 percent and the largest decrease was in San Francisco, California down 18.9 percent. Both two-bedroom and one-bedroom apartment rentals increased year-on-year in Henderson, Nevada; Las Vegas, Nevada; and Virginia Beach, Virginia while they decreased in Garland, Texas; San Antonio, Texas; San Jose, California; and Seattle, Washington.

Attracting Good Tenants

tenants

A landlord must choose an area where the yield is highest when comparing rent to the cost of the property plus maintenance and management costs. This will be of no use, though, if tenants are unable to pay rent. According to CNBC, at the beginning of January 2021, 18 percent of renters in the country or some 10 million people were unable to pay rent because of the pandemic. Analysts state that the total arrears amount to $57.3 billion with the typical delinquent renter owing almost four months’ rent.

To attract good tenants who will be able to pay rent on time, a landlord must ensure that the property is up to par. Construction materials used must be safe. Indoor air must be of good quality. Water, gas, electrical, plumbing, heating, ventilation, and air conditioning installations and maintenance must be managed by certified professionals.

The entire building must be attractive inside and out. A design consultant can help with choosing paint colors and fixtures for kitchens and bathrooms. Common areas for tenants must be inviting. The property’s curb appeal must inspire pride in tenants. A landlord must always invest in quality that will last and also enhance the look of the property. For instance, when putting a fence around the complex, a composite fence such as Trex fencing is more durable than wood or vinyl fencing and looks classy.

Screening Applicants

Landlords must do due diligence in vetting applicants but must comply with the Federal Equal Credit Opportunity Act and the Fair Housing Act. Landlords are not allowed to discriminate against color, race, religion, national origin, family status, sex, sexual orientation or gender identity, and disability. They are, however, allowed to choose applicants who show a better capability of paying. Hiring a professional screening service can protect the landlord in the application process.

Prospective tenants must fill-up the rental application with their identity and the identities of all other people who will live in the unit. Personal information from each prospective resident will include their current address, current employer, social security number, proof of income, credit card information, bank accounts, and vehicle ownership. They must provide personal references, a list of previous employers, and a list of previous addresses. The landlord or the screening service will verify all information as well as check for criminal convictions or bankruptcies. The results of verification must be documented as the basis for approving or disapproving an application.

A Worthy Investment

An apartment complex is a worthy investment that will bring income for years to come while continuing to increase in value. Of course, this is contingent on regular and proper maintenance.

A landlord can earn even more by living in one of the units and selling his or her primary residence to fund another apartment building. With careful planning, one apartment building can be the start of a larger chain of apartment complexes.

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