Buy Rental Near New Luxury Apartments?

3 Replies

Hey BP!

I was wondering what everyone thought about buying a unit that backs up to a new Luxury Aparment and mixed development complex, and what that does to future values and rents. Here's the general info on the situation. - 

Unit is a half duplex in a class A area and needs a lot of updates, but the rent should be close to 1% once done. The back yard direcly abuts a new development that will have 700 luxury apartment units, 4 office buildings, and a tiny bit of retail. There's also an age resticted hotel looking building. The apartments are ugly as sin on the outside, in my opinion. The offices will be very nice, but VERY close to the actual home with highly reflective curtain wall glass that is south facing. There's a possibility of solar glare into the unit. As for the retail, there won't be much and it will be far out of walking distance from the unit. 

Any ideas on how something like this affects home values, generally? The overall location is great, so it probably wouldn't be terrible either way. If there was more retail I think it would be awesome, but those mega apartments are dreadfull in my opinion. 

Thanks for any insight!

@Marissa Carroll :

When new apartments come in, typically they will be the "nicest" units available in the market. Each market has a cap on the amount of rent that it can reasonably charge. So all those rents would typically go to the nicest & newest units. Existing units will theoretically suffer because the tenants may ask "why should I pay you $x when I can go live in that nicer place for basically the same amount of money?" 

Also when you buy in Class A areas, you'll want to see what the rent growth is since that's supposed to be one of the main benefits. For example, I just saw some data saying apartments in the NYC area was renting out for an average of $2200 in 2011. The average is now around $3600. That kind of rent growth is one of the reasons why people buy apartments in that area for absurdly low cap rates. 

You'll also want to do some research as to how your unit compares to all the other units in the area. So let's say the new Luxury Apartment has smaller units. By comparison, your unit is larger and has a private yard space. Stuff like that can make the difference. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information

@Account Closed - That's what I was thinking as far as needing to be priced under the luxury units. The unit I'm looking at is a 3/2 with an attached 1 car, and I would need to get $1600. The apartment units have mostly 2 beds or less, and the 2 beds range from $1600 - $2500 right now. The building just opened, so who knows if those will go down to fill it up. Of course, they have a crazy amount of amenities that I'd be competing with, but they also have to park in a garage and go through a huge building with long corridors to get to their unit.  As for square footage, the unit I'm looking at would be comparable to 400 SF larger. Not sure this is enough of a margin to be competitive.

For rent growth, it's hard for me to say. The area I'm in doesn't appreciate a ton, certainly not like the coasts. I'd say it's stable, but I wouldn't expect a lot of appreciation.