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Multi-Family and Apartment Investing

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Cory St. Esprit
  • Investor
  • Pittsburgh, PA
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Evaluating Area Vacancy Rates (Grove City, PA)

Cory St. Esprit
  • Investor
  • Pittsburgh, PA
Posted Feb 19 2024, 15:55

I am a restaurant franchisee w/ 28 units and I've started buying up the real estate. I'm currently looking at adding a restaurant to the portfolio, which includes the real estate. It's a main street property with the restaurant on the main floor and two one-bedroom apartments above it. It's a small college town (Grove City, PA). I had someone go up there and take a look today (I'm international for right now, but will be back to see in-person in April before making a move, if any). They said lots of apartments up there, but they thought they looked vacant. So my question is, how can I tell vacancy rates and if this would be a good deal? I know vacancy is part of the game (We have about 12 other doors, including residential and commercial)....but how do I judge whether an area just isn't getting a lot of folks renting in it? I figured a college town would be good for students. 

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Greg Kasmer
  • Rental Property Investor
  • Philadelphia
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Greg Kasmer
  • Rental Property Investor
  • Philadelphia
Replied Mar 5 2024, 12:32

Cory - I've found honing in on a specific vacancy rate for a specific smaller market to be tough... Some ideas would be to: Take a look at a market report for Pittsburgh and add a few percentage points to be conservative, Call around to multifamily brokers or property managers in the area and ask their vacancy rate, asks banks what their vacancy assumption is for underwriting, etc... For a 3 unit building with one unit as a commercial space/retail space I would use either a 7 or 10% vacancy factor and perhaps higher depending on the viability/business strength of the restaurant. Good Luck!

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Joshua Christensen
  • Real Estate Broker
  • Albuquerque, NM
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Joshua Christensen
  • Real Estate Broker
  • Albuquerque, NM
Replied Mar 5 2024, 13:05

Hey Cory,

I second @Greg Kasmer's comment.  Reach out to local PM's that specialize in the area.  With you being out of town, you'll more than likely need a local PM anyways.  Start interviewing and get some reports from them on the market.

Check Zillow to see how many listings there are and get a feel for how long they are on the market.  Check Apts.com if they have anything in that market.  

Call local apartment complexes and ask them how many units they have and how many are available in their complexes.  If the larger communities are struggling for occupancy, what will that mean for you?  How far below market will you need to set your rent to gain residents?

Is the market a growth or a yield market?  Are rents rising?  What is the expected population in the coming 3-5 years?  

If the building is near the college, you may have an easier time keeping it rented.  You'll have periods of vacancy during summers and winter breaks, so factor that in.  

Best wishes.

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Robert Rixer
  • Investor
  • Chicago, IL
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Robert Rixer
  • Investor
  • Chicago, IL
Replied Mar 5 2024, 15:35

Vacancy in multifamily is more a function of price. If you priced the units at $1/month you would be at 100% occupancy in no time. As the price rises to equilibrium, that's when occupancy could start to dwindle. Most vacancy issues in stabilized multifamily is due to a stubborn owner holding out at too high of price.

Vacancy is much more of a factor in retail and office where tenants aren't so easily or quickly replaceable.

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Jamie Dietz
Pro Member
  • Lender
  • Pittsburgh, PA
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Jamie Dietz
Pro Member
  • Lender
  • Pittsburgh, PA
Replied Mar 13 2024, 02:42

Nothing beats good old fashion leg work.  Especially, in small markets like Grove City where there may be limited available data.  Hire an PM or just start calling around to all available listings.  It won't take long to figure out the market conditions.