Large developments happening... what should be my investment strategy??

Question

Good morning BP community,

Just to make sure I am thinking about this in the right way... large apartments and housing projects (affordable and market rates & 50 to 100+ units) are being developed in an area that I am analyzing. So I'm wondering...

1. What questions should I be asking myself?

2. Is this a market I should avoid investing in?

3. Are homes near these developments more or less attractive to renters? (these projects are close to a lot of public transportation and large employers).

I think this would pose an issue since it would mean more competition and potentially a saturated market. However, I believe that this shouldn't be an issue if the home is solid and attractive enough (in terms of location or amenities). Any feedback and comments are appreciated. Cheers!

Trevor Richardson · Answer

When investors ask us about this we usually recommend the area. Here is why. If there is a big class A residential project going up typically that project is going to be asking top of market rents.

If you renovate a property nearby, you are probably still a more affordable option. Smaller properties become the more affordable option for tenants looking at the larger properties. Then you enjoy the improvements of the area over the coming years. Be the more affordable option, it’s not bad to be in the shadow.

Note: if this project is releasing 50-100 units in a two month period, while you are trying to lease. That can affect your shadow property during that absorption period.

Eliott Elias · Answer

Those developers have done the research already, leverage that.

Kevin W. · Answer

Good morning @Trevor Richardson

Thank you for your insight and comment! I 100% agree. My only fear is that these developments might cause saturations, but as you pointed out...there are different affordability for different classes of renters in a market. Besides, there must be a good economic driver (besides the shortage of housing stocks) that's causing the developers to invest in the market... something worth looking more into. Thank you again for the comment. Really appreciate it!

-Kevin Wu

Kevin W. · Answer

Good morning Eliott

Thank you for your comment. Great point! My initial intuition was not to invest near these developments because of over-competition. But I should leverage them, and study how these developers are approaching the market. Thank you again!

Sincerely,

Kevin Wu

@Eliott Elias