Location, location, location. Blah, blah, blah. So tell me something I don’t know. Did you know the people living and working close to a multifamily asset are as important as the asset itself? When looking for apartments to buy, how much time does your team focus on the demographic profile of the current and future tenant base?
The outer ring in the multifamily space (tertiary markets) can be just as competitve as 24 hours cities- assuming quality demographics. When reviewing potential acquisition candidates, I focus as much on the demographics of the people living in the area as I do the specific building(s) or development.
Income, average age, household size, type of employment, level of crime against people and property- these are factors weighing on the quality of the acquisition candidate under consideration. These categories, collectively, provide high level determinants of future value of apartment assets.
Buildings alone do not a building make
While location is a large component in the multifamily buying decision, it is by no means the sole decision point. What “surrounds” an apartment complex is just as important as the building(s) itself.
No doubt you’ve seen advertisements for property’s that say “walk to train”. Invariably, some of those units are eye level with the train on raised tracks. Others are a half a mile away. I’m not talking about “advertising” or property positioning. I’m referring to property placement with respect to proximity of surrounding dwellings, businesses, services and jobs.
Not to pick on Michigan, but most people know the state is losing population. This fact makes it difficult to buy Michigan markets recognizing the going-forward demographic will be an aging population with fewer young families. Recognition of weak market demographics makes submarket selection and analysis all the more important.
People, Places, Parking
Have you ever driven by a great looking restaurant and decided to try it only to find NO parking. Isn’t this disappointing? What about going to a bagel shop that is out of cream cheese? What’s the point. Granted cream cheese is not an absolute necessity but if you wanted it that morning then, well, you wanted it.
These are two examples of ancillary, but necessary, articles that diminish the experience of a place. In the first example the experience is eliminated altogether not because of location but because of access to location. In the bagel example even if the customer buys, they are still disappointed in their buying decision. The same holds for property placement, if enough factors surrounding a site disappoint potential customers (tenants), well then, the place itself can be deemed as disappointing.
Property investing is not a passive activity. A viable multifamily asset has many factors in its favor from quality of construction to good access. One of the greatest strengths of a particular asset we manage is not the buildings on site, but the tenant base. Average turnover in apartments is 50% annually. In this particular asset, turnover is less than 25% each year. This one fact adds significant value to the underlying asset as turn costs is substantially lower than similar properties.
Think of demographics as the tires and wheels of a car. A car cannot move without four tires, evenly balanced. Positive demographic attributes, like tires, assist in carrying a property forward. When maintained well, they can last long into the future.