Multifamily Properties Provide Greater Control over Rents

One of the commonly overlooked benefits of investing in multifamily housing involves the greater degree of control that landlords have over the price of rent. Typically, owners base rent on comparable properties in the area. With a single-family home, rent is thus often contingent on the prices that other people have set for the houses that they own. Potential tenants, likewise, will look at other homes in the area to judge whether or not a price is reasonable.

In multi-unit buildings, the most obvious comparables are the apartments located in the same structure, which gives landlords control over the hyperlocal market. This control affords them greater flexibility in setting rent. When making renovations to a multi-unit building, investors can typically increase rent more than with a single-family home because the price of comparables will also increase.

While multifamily property investors still need to ensure that they are not entirely pricing themselves out of the market when they raise rent, the greater control over rent can result in significantly greater revenue in the long term.

Los Angeles Aims to Increase Affordable Multifamily Housing

In November, residents of Los Angeles will vote on an ordinance that would require large developments to include a higher percentage of multifamily housing units, thereby making way for more affordable housing in the city. Developers building near public transportation hubs such as rail and bus stops also would receive incentives for increasing their low-income housing offerings.

The ordinance's requirements would not apply to downtown Los Angeles or industrial development within a short distance of major transit stops. Developers in eligible areas would have the option to contribute to the city’s Affordable Housing Trust Fund instead of building rent-controlled units.

More than a third of Los Angeles residents spend more than half of their income on housing, increase the occupancy of their unit, or move into distressed parts of town to afford living there, said Joan Ling, former treasurer of the Los Angeles Community Redevelopment Agency, in a press statement.

More multifamily housing, along with more land zoned for multifamily housing, will help alleviate some problems with affordable housing in the city, Ling said.

Five Key Metrics to Review for a Multifamily Investment Market

The specific real estate market in which one invests is an important determinant in one’s success as a multifamily real estate investor. The following five key metrics can inform the investment decision by providing important information about the health and status of such a market:

Population growth rate

Since more residents translates into a greater demand for housing, this is one of the most important metrics for predicting future market volatility. It’s not necessary to identify a market in the top 10 for population growth. As an investor, you’ll care more about steady, long-term growth. If growth in your prospective market is flat to negative, it may not be an ideal place to acquire multifamily assets.

Employment growth

As employment growth tends to drive population growth, you should develop an understanding of your market’s job creation trends. Check out whether the job market is steady, whether it fluctuates at a greater rate than that of the overall economy, for how long a period it has been stable, and what forces drive its ebbs and flows.

Components of employment growth

Merely looking at job numbers won’t give you the whole picture. You also need to understand from where those jobs are coming. Specifically, you want to research the stability of job sources (service and retail jobs can be very volatile), the types of job sources (and whether they are likely to attract white collar, blue collar, or minimum wage workers), and the age group from which the dominant job sources are drawing.

Unemployment

Understanding the components related to unemployment is different than for employment growth, so it’s important to look at this factor separately. In general, you want to look for a market with lower unemployment than the overall national market, which will make your market comparatively better for multifamily ownership.

Landlord/tenant law

A number of laws from different sources affect how you will operate your multifamily investment, so a thorough understanding of these is critical. It is particularly important to pay attention to how evictions are handled, as these can wind up being costly and damaging to landlords in some areas.

About Chad Doty

Chad Doty has achieved professional success in both the management consulting and commercial real estate sectors, and has gained additional experience in the health care, finance, commercial products, and managed services industries as a consultant with globally prominent firms. A decisions theory and computer science graduate of the University of Kansas, he is currently based in Richmond, Virginia, where he serves as CEO of 37th Parallel Properties. As CEO, Chad Doty has built a portfolio valued at over $100 million by developing and implementing the company’s focused investment and acquisition strategy. Currently, 37th Parallel holds 10 multifamily properties comprising over 1400 units in major cities throughout Texas and Kentucky.

Chad Doty previously owned and operated Realize PPM, a project portfolio management consulting company, and Focused Return, a real estate and equities investment firm. For three years, he worked to implement project portfolio improvements for several firms throughout the mid-Atlantic region while managing $3 million in family funds, securing yearly returns of approximately 14 percent.

Prior to his entrepreneurial ventures, Mr. Doty held a position with Smart and Associates as director of the Devon, Pennsylvania, firm’s IT transformation practice. He strategically developed, optimized, and implemented project management solutions for leaders in the oil logistics, chemical manufacturing, and disaster recovery services sectors, managing a team of personnel to pursue a $5 million revenue target.

Throughout his business consulting career, Chad Doty drew on experience gained at Whitlock EBS, where he simultaneously managed 25 major consulting projects, and Arthur Andersen, where he served Fortune 500 and Top 50 private companies in the areas of information technology, mobile business strategy, and e-commerce. The recipient of Arthur Andersen’s Manager Sales Achievement Award, Mr. Doty played a key role in developing the firm’s mobile commerce solutions practice.