2018: The Year of Class B and C Multifamily Investing?
With the new calendar year finally here, we wondered would 2018 be the year for class B and class C multifamily investing to shine? According to a lot of data and several articles we found, that's a qualified yes! With a variety of factors at play, it looks like 2018 will be a great year for these classes – especially in certain markets.
Even back in June, investor site MFE Business and Finance talked about how Class A was losing out to class B and C properties. They predicted then that B and C investing would remain high for the remainder of 2017 and well into the new year. Some reasons? Class A was over-saturated and there was also a drop in demand, as well as more millennials entering the market. B and C-class properties are also considered more “recession proof” whereas Class A would be an expensive liability under similar economic circumstances.
Class B and C properties seem to have a little something for everyone. They aren't as expensive to build/maintain as class A, and they're also appealing to a wider group. Everyone from blue-collar workers to trendy millennial hipsters are found vying for a spot in a tighter rental market while the class A properties are showing more vacancies. These properties occupy a sweet spot – they're located in solid, established neighborhoods and give renters themselves the best return on their rent. In an unstable economy, these properties tend to be the safer bet and attract more tenants. For investors, making relatively affordable improvements like an upgraded clubhouse, park, or new dog park can pay off handsomely by ultimately leading to higher rents.
According to an article in Multi-Housing News (MHN) online, renovating existing older class B and C apartments is a sound strategy. According to their article, the math doesn't really work when it comes to building new class B properties in the same suburban areas where existing properties from the late 70s just need to be modernized. This article talks about the suburban market and mentions that in 2018 investors might want to stray further afield from the saturated metro areas while looking for class B and C properties. We've mentioned in previous articles that secondary and tertiary markets can often provide excellent opportunities away from the battleground of major metro areas that already have plenty of investor competition. Rural markets, too, can offer hidden gems, especially if a seasoned investor has a unique tie to the area and knows it well.
Boomers and millennials are anticipated to bolster the rental market in the coming year, as these two large generations continue to move, retire, and establish themselves, respectively. The suburban market can be ideal when appealing to both, as it tends to offer amenities that either demographic will appreciate such as shopping, dining, and an established community. Thus in 2018 savvy investors will look to less-competitive markets to find the ideal B and C properties that they can then renovate or remodel for a modest sum in order to recoup profitable rental rates. As Class A properties languish with less demand in an economy in flux, reliable, solid Class B and C properties will continue to draw a wide variety of renters. These properties also have the distinction of being recession-proof, making them a wise and safe investment in an economy facing uncertainty as the dust from the new tax bill settles.