September 10, 2019
Finding the Right Apartment Investment
by Charles Conrow • Senior Broker
Each investor will have its own specific needs and requirements. One will want pride of ownership, another will need cash flow and still another will want to add value through physical and/or management changes, or even develop or redevelop a property. How does the investor find the property that will fit its needs?
First, the investor will need to determine if it is going to be an owner/operator or a passive investor. This will help determine the size of the property. Owner-operators range from individuals that own several small properties and are hands-on operators including maintenance, improvements and rent collection to large sophisticated entities that hire their own staff for everything involved with ownership. They usually are interested in only the larger properties in well-established metropolitan areas. These two investor types usually are at opposite ends of the property size spectrum. In between are the majority of investors that usually hire management companies to oversee the day-to-day operations of their investment and provide property financial reports as well as professional advice. For these investors, consulting with a broker specializing in investment real estate, and preferably with a firm with an expertise in management, will be of great help in identifying the ideal property for them.
The investor must also consider the amount of risk they want to assume when acquiring their property. One of the advantages of multifamily properties is that the risk of rental loss is spread out over multiple tenants. The term of leases or rental agreements can be adjusted so they can provide more security with longer leases or take advantage of rising rents with month-to-month rental agreements. Unfortunately, with the current legislative environment restrictions have been placed on the owner’s ability to control both rent increases and evictions. The investor needs to be aware of the restrictions in their State and Municipality.
Risk will vary greatly between properties based on location, the business cycle, management challenges relating to property size and demographics, and the ability of the investor to hold or refinance the property in times of economic downturn. The physical condition of the investment upon purchase can be a risk to cash flow or an opportunity to reposition the property to gain long term cash flow and value. Apartments can quite often be repositioned quicker and easier than other commercial properties while preserving cash flow.
As an example, an individual include stable income, manageable cash requirements and equity buildup over time. To achieve these goals, the property should be large enough to support good professional management, be located in a stable or improving neighborhood, either in good physical condition at the time of purchase or have a source of funds at the time of purchase to make any needed repairs or improvements. The loan should have the ability to be prepaid without unreasonable penalty to provide ease of refinancing when desired.
Finding the right property is one of the most important factors in acquiring a successful investment. With the help of a real estate professional an investor will be able to locate the best property for its specific needs. The team at Norris & Stevens has the market knowledge, brokerage and property management experience to help determine the best property for the investor.
Norris & Stevens, Inc., is one of the largest locally-owned, full-service commercial real estate brokerage firms in Oregon and SW Washington. A member of the TCN Worldwide network, the firm was founded in 1966 and currently employs approximately 75 professionals in investment sales, leasing and property management for office, industrial, retail, land and multi-family properties. The firm’s property management portfolio exceeds 5 million square feet of commercial space and over 9,000 apartment units.