Choosing a great residential or multifamily investment property for some is an art. The good news is with some effort the process can be a science. Great properties demonstrate several common characteristics. A few to concentrate on are:
- Are the properties around your target heavily occupied and do they offer more amenities and services with significantly greater rents? If so does your target property offer a footprint and other requirements to support the same?
- Have the rents been unchanged for years? Are the appliances and other features significantly outdated?
- Is the project's visibility excellent and near 100% occupancy?
- Does the site offer excellent potential for new revenue sources?
- Are rents rising around the target property consistently and strongly?
If any or all of these are the case you may have identified a great project. Exactly, how each of these may impact the value of the project are described further below:
High Occupancy, High Rent Surrounding Properties ==> Get out your stubby pencil and begin figuring out the cost to improve your target property. Workout whether improvements can be made on turn or will you have to clear and improve the projects. I've managed projects like this to triple digit returns on investment. You can too!
Long Term Unchanged Rents ==> Perhaps this is the best opportunity of all. A well maintained project that has failed to follow the market can produce amazing returns with almost no investment in some cases through repositioning. In one purchase I completed, we almost doubled the value based on NOI from $2,450,0000 to $4,300,000 in less than 6 months. The total capital investment was $49,000.
High Visibility Near 100% Occupancy ==> Traffic will support stronger rents and fees. Also, the visibility may create signage revenue opportunities. Many property owners overlook the alternative customers their real estate offers.
Potential Alternate Revenue ==> In some cases, a project offers space for storage rental, office condos, signage revenue, other charges to renters, charge back of services, etc. These items can add $100 or more per unit to a project.
Rent Increase Trend is High ==> For the patient equity investor, a project that offers long term above average rent growth because of the local market growth trends, economic trends, or new development is often a tremendous value as the long term returns can be very high and the cash out financing early in a long term hold can be very positive.
