When thinking about apartment investing, we want to think about where to find the best apartments.
Of course, in order to do that, you must know what actually makes an apartment property a good buy.
A good place to begin is to go over a few things you don’t want to look at…
Where NOT to Look
- Apartments in a war zone – these are generally pains in the butt. You buy these and you buy a lot of problems. There are times when it’s okay, but for beginners, it’s best to avoid these areas.
- Empty properties – The last thing you want is to have to work too hard to solve somebody else’s problems.
- Class A luxury – On the surface, these might seem great, but high-end apartments are expensive. And the fact is, your best tenants are not high-end.
Keep in mind that most people who rent an apartment do so because they can’t buy a house – either for credit, cash or temporary living reasons.
You avoid the low end for obvious reasons and you avoid the high end because it’s much harder to rent a $2,000 per month unit than a $1,000 per month unit.
The $1,000 tenant outnumbers the $2,000 tenant by a factor of about 100 to 1.
Your Bread and Butter
Okay, so what should you look for? Well, let’s start by putting together a profile of an average apartment dweller.
That’ll help us decide where in town to buy and what quality of property to look at:
- College students
- Young adults between 22 and 34
- Blue collar workers and young white collar workers
- People with bad to average credit
- People who make less than $50,000 per year – either alone or as a couple
- People with pets
- People who want a short commute to work or school
- People with limited cash
- People moving into or out of the area
- People who want conveniences like close shopping
So when you look at all of these common elements of the apartment renter, what do they suggest to you?
What parts of your town would seem to be good places to buy?
Where to Look
- Complexes near Universities or community colleges.
- Properties near the business districts.
- Properties near industrial districts.
- Properties along major transportation corridors.
- Properties in growing areas with new shopping and dining options.
- Properties near coveted geographic features like state or federal parks, beaches or commuter highways.
You don’t want to hide your light under a bush. If you want a property that has a high occupancy and can command a good rent, then focus on these areas above.
Buy properties that appeal to your end customer!
One More Quick Note
Apartment properties are generally placed into four categories: A, B, C and D.
Class A’s are new, high-end and luxury. Class D’s are old, run down and need a lot of TLC… or a bull dozer.
What you want to look at are solid class B and upper-end class C.
Properties from 15 to 30 years old in reasonably good shape, in good areas that have a 70 to 90% occupancy.
That’s your bread and butter.
That’s where most renters want to live and that’s where you’ll not only make a good income right away… you’ll be able to add value and increase your returns too!
