High Vacancy on Apt. Complexes Investor Analysis
I'm just looking to get an opinion.
As investors or property managers, do you completely avoid neighborhoods with high vacancy rates, or would you consider purchasing an apartment complex in a neighborhood with high vacancy rates if the price is right?
There is one neighborhood I'm looking at where the vacancy rate is roughly 29%. The property I'm looking at is currently at 60% vacancy. If I were able to bring up the property to neighborhood averages, there would be huge cash flow and NOI Increase. The property needs a lot of capital improvements and can be purchased at a deep discount due to seller COVID panicking. The neighborhood is decent (B, maybe B-) just a little distant from the city and lower population density. All other things being equal, is this something I should look further into or is it something you'd recommend I steer clear of?
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#5 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
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#5 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
@William Tomp, yes 90+% is ideal and shows that generally supply and demand are in balance, really more like 95%, but when you start getting above that, you can bet supply will be growing quickly as everyone is looking to bring new product online.
If the market is really low, it is clearly oversupplied, and knowing which side of that trend you are on is important. Clearly, if population has been growing and overall economic drivers continue to show sustained growth, you want to be on this side not the other. And until that occupancy number gets above 90%, you will likely not have any new supply.
For the question property, if it is an outlier sitting much below market vacancy you typically have a management issue that would be resolved when you take over. The other issue though is that there will be baggage with any property. Is it known as the high crime property in a low crime neighborhood? Is it known for being undermaintained? There is a story that is important with all properties, but particularly these relatively distressed assets. Changing the neighborhoods perception of it can be challenging depending on the story.