Investing in Apartments Includes Some Benefits
Apartments are the hottest class of commercial real estate and are likely to continue being hot for a while. Independent of the unique demographic and economic drivers for their success in the current post-Great Recession economy, there are a few basic truths that make them attractive:
- Housing costs usually move up and apartment rents can be adjusted on a regular basis.
- Vacant units are easy to re-rent with little or no cost. In fact, tenant security deposits usually pay for cleaning and repairs.
- Excellent financing with 80 percent leverage is readily available.
- Relatively easy appreciation through making cosmetic upgrades to increase rents.
…But Apartments Also Include Some Downsides
For many investors, though, apartments have three key problems compared with other classes of commercial real estate. They have tenants that break things, complain and fail to pay rent. Apartments have kitchens that tend to start destructive fires. Finally, they have bathrooms that leak and cause damage to surrounding units. At the same time, many cities heavily regulate apartments and, in many cases, favor tenants over landlords. These problems make apartments challenging and time-consuming to own.
Imagine, for a moment, an apartment building without tenants, kitchens or bathrooms and with little or no government oversight. All that you would have are rooms with furniture, clothing and other items in them. If you have ever owned an apartment building, you know that a building like this one would be a dream to own!
The Solution: Self Storage Facilities
In fact, the perfect apartment building is a self-storage facility. Mini-storage facilities offer a similar ownership experience to apartments but without any of the drawbacks. Because they frequently serve apartment tenants, their performance tracks the apartment industry, as well. Furthermore, modern management systems make them much easier to own than many people realize.
Read more of Solomon Poretsky’s blog posts here.
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