Class B Multi-Family Becoming More Sought After
Multi-family properties are very hot, in-demand investments at the current moment. The consistency of demand for rental units, and the prospect that rental rates will rise as the economy recovers has demand for apartment properties in all asset classes continually rising.
Investors are attracted to sure things, and in the current economic environment apartment buildings are about as close as an investor can get to a sure thing that still offers enticing returns.
The big players though, REITs, real estate private equity have bought so much of their core investments though (i.e. Class A apartment buildings), they are reaching the point of being fully priced, and paying a premium for Class A property will mean getting lower returns for the same security. So they are starting to look outside the core investment properties seeking higher returns.
Some are looking at office properties, but it could be a while before the economy recovers to the point where demand for office space returns. Some are willing to take on the risk of moving into development, where there is definitely demand, but high competition. Others are buying strip centers and limited service hotels.
Those funds only interested in apartments though are doing something quite interesting. Thanks to competition driving Cap rates on Class A properties ever lower, real estate funds are now buying Class B properties in order to maintain high returns without significantly increasing risk.
What does this mean?
This means that if you, individually or in partnership, locate a 100-200 unit property with value plays in a Class B area, organize a bridge loan and private money to buy and rehab the property, then spend the next 12-18 months stabilizing the property and bringing it up to it’s full potential value, you will have an interested and motivated buyer ready to take the property off your hands, at market Cap rate … for cash.
Apartments are always a great place to be, but right now, times are especially propitious for apartment entrepreneurs.