An apartment is the first place most people live when they leave home. Students, employees working their first jobs out of school, and people mid-career mostly live in apartments or condominiums, and many of them have roommates or partners with whom they share the bills.
If you want to make money in real estate, you need to keep yourself abreast of the renters’ needs and desires. Purchasing an apartment building can be a profitable investment, and you can make a lot of money if you rent out your units or sell them for a higher price.
Here are some of the things you should know when looking for an apartment building to invest in, whether you hire a commercial real estate investment firm or you’re investing on your own.
How Much Do People Make in the Area?
The apartment building you’re eyeing might be in a good part of town, but at the end of the day, the money you’ll be making depends on how much money the people make around it. Be sure to look into the stats of how much your prospective renters or buyers are making, which shouldn’t be hard as median household income rarely fluctuates even in times of crisis.
In St. Louis, the reported median household income hasn’t significantly changed for the past three decades. Data from the St. Louis Federal Reserve reports that median household income has only increased by about $10,000 from 1986, which is a disappointingly low number. However, with the millions of better-paying jobs in technology and never-before-seen careers, household income in America is at its highest.
How Much Do Homes Cost in the Area?
A report from the Case-Schiller Index says that American homes have gotten 31.6% more expensive from 2012 to 2017, which denotes a yearly rise of nearly 5.3%. Data from Redfin in 2012 suggested that in the 30 biggest cities across America, people who made an average income found 44% of the houses in their area affordable. In 2016, that percentage dropped to 32%.
Search for more localized statistics, so your research is more relevant to your purchase. Are the home prices in the area you’re planning to buy an apartment building compatible with the money people make? If they’re not, you will see an “affordability gap,” which means fewer people will buy your units and resort to renting. This can work for you or against you, depending on how willing they are to find a cheaper place to live.
How Much Do People Pay for Rent in the Area?
The cost of buying a house today has far exceeded the top analysts’ predictions in the ‘80s and ‘90s. Housing prices have risen at such an accelerated rate that it’s become impractical for many Americans to consider even owning a bungalow. Apartment rents have also seen some hikes, although not as much compared to the cost of homeownership.
Data from Redfin reveals that apartment rents only climbed 18% in America’s 30 biggest cities from 2012 to 2016. If you pair this with a stagnating median income, more and more of people’s salaries will go to paying rent, even though rates haven’t risen all that much. The struggles people face paying for a house is now even more intense and prolonged, which de-incentivizes the younger generation from pursuing homeownership.
If you’re planning to buy an apartment building, this might be good news for you. As long as the rise in rental rates is competing with surging home prices, renting an apartment will always remain the practical choice.
The local median income, rental rates, and home prices are the three things you should research to take advantage of the affordability gap and hopefully make a good return on your investment.
Here are some state-specific statistics on how much cheaper renting is than homeownership:
- In Florida, renting is up to 35% less expensive than owning.
- In Arizona, Delaware, Colorado, Indiana, Georgia, South Carolina, Nevada, and West Virginia, renting is 45% cheaper than owning.
- In Virginia, Arkansas, Tennessee, Maryland, and North Carolina, renting is 50% more affordable than owning.
- In Utah, Alabama, Oklahoma, Hawaii, Mississippi, Idaho, Michigan, and Louisiana, renting is 55% cheaper than owning.
- In Texas, Alaska, Washington, Kentucky, New Mexico, and Missouri, renting is 60% cheaper.
- In New York, Montana, Wisconsin, and Illinois, renting is 75% more affordable than owning.
Call a Professional
According to a study by Freddie Mac, 78% of American renters believe that they’re better off renting than owning a house, so if you’re planning to buy an apartment building, the time is now. Do your research with the right partners to reduce the risk of your investment. Call Yankee Capital today at (781) 400-8778 and start your journey to becoming a great real estate investor.