Commercial Real Estate eNewsletter: April 2023

What’s in this issue?
> 6 Elements to Check Before Buying a Multifamily Property

> Study: Millennials Renting by Choice Boose Market

> Wal-Mart to Close Tech Hubs and Stores

6 Elements to Check Before Buying a Multifamily Property

If you’re thinking about investing in multifamily properties this year, now may be the perfect time. Analysts report that demand for rental units should remain steady over the next four years, as home prices and mortgage rates remain high and occupancy rates remain above 95%.

Before making any investments, it’s important to consider a few variables. First, look at the location of the property and the local rental market. Are there any areas of town that are more desirable, or any neighborhoods that show potential for growth? It’s also worth researching the average rent of similar units in the area, as well as the vacancy rate, to get an idea of what kind of return on investment you might expect.

You should also consider the condition of the property. Is it in need of repairs or upgrades? If so, can you afford to do the work or will you need to factor in the cost of repairs and renovations?

Finally, look at the potential for cash flow. Estimate the operating costs—including taxes, maintenance, and insurance—and compare them to the expected rental income. This will help you determine if the property is worth investing in.

By doing due diligence and carefully analyzing all of the variables, you can make an informed decision about investing in multifamily properties this year. With high demand and steady occupancy rates, now may be the perfect time to invest.

That said, you’ll want to conduct due diligence and consider multiple variables before making such investments. A few to examine:

• Building elements. Examine everything from windows to insulation to plumbing to wiring, estimating both repair costs and utility expenses. Make sure there is no hidden mold and no fire or water damage. Does the market in the area require upgrades?

• Potential rental income. Consider the building’s amenities. What is the area’s upscale level? Is it too upscale or not upscale enough? Are there any vacancy rates or prices in the area? What is the cap rate? How much is it likely to resell for? Are all numbers in line with your investment goals?

• Surrounding neighborhood. Take into account local environmental, municipal, and crime issues, school district ratings, walkability, proximity to amenities, pending projects in the area that could affect values, as well as the conditions and sale prices of nearby properties. Is additional insurance needed during natural disasters?

• Sales history. Red flags include constant turnover.

• Regulatory issues. Ensure your business is compliant with building codes, real estate taxes, zoning requirements, and rent control laws, as well as pending legislation that could impact your profitability.

• Willingness to serve as landlord. In some cases, you may not have the necessary skills, time, or patience to deal with issues that arise.

Study: Millennials Renting by Choice Boose Market

Some U.S. adults will always rent instead of buying, but analysts believe an increasing number are doing so out of choice these days.

The “lifestyle” segment is expected to boost the country’s rental rate by 6.3% in 2023.

In a 2021 study, high-earning millennials led the trend, but high-earning Gen Xers and boomers have also increased rental applications. A 20% increase in the number of rental applications submitted by millennials in 2021; 39% of applications came from those with an annual income of $50,000 or more

In the study, real estate exec Noah Echols concludes, “Millennials are normalizing lifestyle renting.”

A surge of high-income millennial applicants was observed in Macon, GA, among smaller cities, and in Indianapolis among big cities.

Can you tell me what’s going on? As the sellers’ market calms, some renters with money are scouting cities. Others argue that renters are more likely to feel like part of a community, have access to amenities, and aren’t obligated.

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Wal-Mart to Close Tech Hubs and Stores

Wal-Mart Corp. plans to close seven stores and three technology hubs in the U.S. this year. Though Q4 of 2022 saw 8.3% sales increases across established stores, Wal-Mart projects slower profit growth and sales this year due to less discretionary spending.