New Apt Building Affect

8 Replies

I'm new to the rei game, and have been looking to invest in 3-4 unit homes (2 & 3 bdrs) in a small town (5,000 ppl). I just found out that a large(r) apt building is going to be built in the middle of the town (all 2bed/2bath's) Within the next 2 years. If I can snag a triplex/quap at a 1+% rule, would it still be a good idea considering the upcoming changes??

It could be.   Do you know with 100% certainty it will be built?  

This happened near me and it took over 5 years to get it built.

How is the rental market in this area?

 I guess the real question would be what are the numbers and will it cash flow.

Have a plan B.  What if a year down the road the builder or owner bails out and the building never gets built?  Will you still be able to rent the multifamily?  Always expect the unexpected and have a 2nd plan just in case.

For example, a brand new class A property will probably not greatly impact a class C property as theyre competing for different rental populations.

You should do your best to determine how competitive you'd be for the same renters as this new building to begin evaluating the impact it would have then study your local rental market. Can your area absorb the additional units?

Because I know for DC, no matter how many class A units for $2500+ the builders build, it probably won't much impact a class C building renting out $1200 units. The people theyre competing for are different.

There's been (and currently is) an explosion of new units coming online. I'm sure that for a period of time it'll have an impact on the demand for all the existing units within range of the new building's rent range. But over time, this market has enough jobs and enough people in the rental market that it'll reach an equilibrium and vacancies shouldn't be a substantial issue even for buildings with similar rents.

In essence, there isn't an answer we can give you except to know the market youre looking to buy in, and determine how X number of units in X property class will impact you.

Smaller markets will obviously have more significant impacts if a new, large building is built.

Hope that helps.

300 units just came to my town, with another 109 having broke ground.  Here that's a lot!  But... like @Richard Haiber points out, the new stuff is different. All class A with 21st century amenities and rents are crazy high- $1200/mo.  My 1960's townhouse apts are only $850.  Now I have somewhere to direct all the picky people to! "Want high speed this and granite that?  Go over there, pay $1200, and be a renter for life!"

That said, I also have 17 units in a small town of 1200.  A new development would make me a little nervous, too.  Most likely they will compete at the high high end and your 3 units should be fine @John Torres .  How many units is this build supposed to be?

@Brent Paul thanks for the reply! It's not 100%. They've been talking about it for about 3 years now, but I recently saw them promoting it on Zillow, which is a first. The rental market is real strong becausr half of the population in the town are oil refinery workers that are quite transient. I'm learning that having multiple options is imperative in this business if you're going to make sounds decisions.

@Richard Haiber, great points. The (potentially) new apt building would capture a different class tenant than the triplexes in this town. I presume that would be in my favor in this situation.

@Steve Vaughan thanks for join' the convo! Not sure about the # of units, but based on the info the builder is putting out there it is a completely different demographic. Knowing the "small town" mentality in the city, I do wonder if the builders strategy is going to completely flop. Its just educated speculating on my part though.


A town of 5,000? Half of the workers work in the oil business? Transient tenants?

The market is THE most important aspect in any res. real estate deal. I don't know this town or where it is but from what you told me this is a solid pass on my end. OPEC projects that oil will be below $100/bl for the rest of the decade. It has already affected numerous American oil companies, when is it going to hit this town? (See Houston, TX a few decades ago) Transient tenants are very difficult to manage, and have a much higher wear and tear on the property. Finally, appreciation is out of the question. 

Make sure to step back and look at the bigger picture, good luck.

@Seth Wilson thanks for your birds eye approach. Good thought to carefully consider.