Wednesday, November 29th, 2017 November29th2017

6 Apartment Owner Risks

Published on November 29th, 2017

Apartment building prices have hit all time highs in most markets.  That means we speak to a lot of, shall we say, very confident apartment owners.

There’s a fine line between confidence and hubris.  Today we present six apartment owner risks that may temper that hubris.

Rents have gotten too high

A Freddie Mac survey found that of the renters who plan to move to a different apartment community in the next 12 months, nearly half (48 percent) will leave for a unit with a lower rent.

Many developers expect “young professionals” to pay a premium to live in their properties.  In many markets there aren’t jobs to support these high living costs and I don’t see anything on the horizon that will change that.  An oversupply of high rent units is sure to be an issue in the next 1-3 years.

Cell phones better work

If cell phones don’t work flawlessly in your building it’s going to cost you.  Reliable cell phone reception is the most valuable amenity for the renters surveyed by Kingsley – ahead of even parking.

Renters want a “concierge” – not a property manager

The expectations for customer service are going up.  Of the renters who plan to move to a different apartment community in the next 12 months, more than a third (34 percent) are moving to get better property management.

This is a tough one.  As the owner of a property management business, I get it.  It’s nearly impossible for the property owner, the renter and the property manager to all be happy at the same time.  These are naturally adversarial relationships after all.  So the goal is not some utopian ideal.  The goal is finding the right, profit-maximizing balance.

We recommend that every property have a Concierge who is the contact person for the tenants.  They should be friendly and easy to get a hold of.  They don’t have to have a real estate background because this is a purely customer service role.  The Concierge should report to your property manager.

Your property manager’s job is to maximize your profits (by implementing your system).  These two should essentially play good cop and bad cop.  The Concierge delivers all tenant messages, positive and negative, with a smile.  Being polite goes a long way.

Location is still the most important amenity

The problem is well located development sites are getting more expensive.  Developers must keep their pipelines full so to make the numbers work they build taller, higher unit count buildings.

These buildings almost always charge high rents.  If you have a great location with higher rents, a new development might put it all at risk with oversupply.

Microunits

Other developers are creating buildings with smaller 300-400 SF units.  These units come with lower rents and many more amenities.  Do you own one bedroom apartments in a great location?  If so, you may soon have a new competitor that can undercut you on price and win on amenities too.

Renters want more amenities (without higher rents)

Forget including cable TV in the rent – they want high speed internet.  And they want a gym, outdoor space, pool, package prep and delivery area, lounge that encourages random introductions (that used to happen in bars), private work areas and fire pits.

Many older properties can’t add these amenities even if they wanted to.

Summary

The world is changing rapidly.  See the situation with clear eyes.  If you don’t think your property is well positioned to compete 10 years from now – then you should consider selling while we’re still at the peak of the market.


Considering selling?  Get the step-by-step blueprint to sell your property for the absolute highest price the market will pay at www.SellforMorePlan.com


About Beau Beach, CCIM

Beau is an elite Investment Real Estate Broker, Forbes contributor, author, investor and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau leads Prowess IRES which specializes in selling investment real estate for the absolute highest price the market will pay.  Wisconsin, Florida and Illinois.

Beau can be reached at 414-324-4938, 561-425-9935 or Beau@ProwessIRES.com