Find Great Deals in Any Housing Market – Here’s How
In America today, the number of homeowners continues to decline while the number of renters rises. Most of these renters are looking for quality, safe, clean, and more importantly, affordable housing for themselves and their families. This growing workforce is also facing a shortage of units in that accessible rental band of 600 to $1,100 a month.
Rental Housing Asset Classes
In rental housing, you’ve got Class A, B, C, and D assets. Class A properties are luxurious, typically new with higher-end finishes (and high rents). On the other end of the spectrum, you have Class D properties. Those are usually the oldest properties, in rough school districts, that lack maintenance.
Right now, 95% of all new apartment housing is Class A, or what you might call central business district high-end urban residential. Class A or luxury housing is typically very sensitive to market cycles and corrections. This is a big problem for potential investors because you don’t want to be the investors renting high-end $2,000 a-month studio apartments when the next recession hits.
When it comes to real estate investment, my team focuses on Class B and Class C assets. The reasoning behind this decision is simple. Workforce housing is less susceptible to large market corrections and is always (and will still be) in demand.
3 Questions for Finding a Good Deal in Any Housing Market
When looking for a good deal in the housing market, we ask ourselves three key questions.
Is this a reasonably well-run asset with steady cash flow (already in place)?
Is there the opportunity for capital appreciation through unit improvements (to raise rent)?
Are there opportunities to manage the asset more efficiently to reduce costs (and increase profit)?
At BAM, we look for investment assets that exist in markets with a reasonably high expectation for future growth. We look for a well-run company that already has a steady cash flow. We look for an excellent operating history, too.
Why BAM Doesn’t Develop Real Estate
Investors often ask why my team doesn’t develop real estate (build it from the ground up). The simple answer? There is inherently much more risk to building from scratch. With real estate development, as opposed to workforce housing, there’s a considerable time lag, typically two to three years before you can start renting out those new apartments. If the market changes during the construction phase, you can lose equity fast.
Finding the right real estate investment takes a lot of effort. At BAM, we look at around 200 potential workforce housing investment opportunities to find one great opportunity.