Will new construction apts push other smaller landlords out?

Question

Hello BP community, I now have 3 duplexes around SLC area that are all cash-flowing well. My units are a bit older but in decent shape (I like to remodel when I buy so it forces appreciation). I am a little worried about continuing to purchase older units as new construction units are popping up everywhere. Is this worry rightly justified or am I overthinking this?

Robert C. · Answer

@Spencer C., Depends on local factors, but you are probably overthinking. Your older units will probably serve a different segment of the renter market vs new construction. Construction costs are high right now, and developers will expect certain returns. Many new large developments are geared towards the luxury end of the market.

Jay Hinrichs · Answer

not sure about your market but most markets new construction 2 to 4 unit make zero sense financially and the new construction is bigger 20 to 200 units  different product.

Cherie Orellana · Answer

@Spencer C. I don’t think you should be worried. I continue to purchase older homes as investments and even have a 1936 in millcreek under contract right now. There is lots of new construction due to the housing shortage, however the need for affordable housing will continue to grow as home values rise.  It might be wise to throw in a townhome, single family or new build here and there to diversify your portfolio. However  how good the deal is (purchase price, cashflow, condition) when you buy it is more important than the type or style of property in my opinion.

Account Closed · Answer

Unless you own where nobody wants to live, or have units with dysfunctional layouts, I'd say the best defense against vacancy is a fair price for a nice unit, add on some respectable management for good measure. Crap holes are harder to rent. You have 6 units so yes, I would say you are over-thinking it for now.

If you do want to over-think it...

http://www.city-data.com/housing/houses-Tooele-Utah.html

Jay Hinrichs · Answer

Ya in the west coast it makes zero sense dirt is too expensive and value is owner occ not rentals.. make a ton more selling to an owner over a landlord.. and I mean a TON more

Spencer C. · Answer

Thanks to @Robert C. , @Taylor Chiu, and @Jay Hinrichs. All good points and appreciate the confirmation.

Erik W. · Answer

@Spencer C., agreeing with the others that your duplex is a different product that a medium or large apartment.  A duplex usually includes the following: a yard, possibly a privately fence back yard, one (just ONE) neighbor vs. 100, and a quieter residential neighborhood vs. high-density zoning with 100s of folks coming in and going out 24/7, etc.

New apartment construction in my town is targeting college kids with affluent parents paying their bills and/or younger professionals with higher than average salaries.  Your more economical units will be good for singles, blue collar workers, and/or young families starting out.  You may also be able to offer flexibility on things like allowing pets that a brand-spanking new mega-plex property will not allow.

Taylor Chiu · Answer

@Spencer C.

I wouldn't worry about it too much, construction is still trying to catch up with demand in our local market. You buying value-add will also hedge against any competition in the market, since you are forcing your own profit.

Plus most of the new construction are high density units, which has a different audience than people looking for duplexes.

Theresa Harris · Answer

@Spencer C.  Look at some of the new units, you will see many have less square footage.

Spencer C. · Answer

@Erik Whiting, thanks for the response. Very true. Each duplex of mine has a much different feel than the apartments / condos that are all lumped together. Also yard makes a big difference as I always allow pets as it helps to get a larger. Appreciate you sharing your thoughts!

Account Closed, Good point, Merritt. Thanks for providing the link to city data, I'm still trying to figure out all the ins and outs so I didn't know about that!

Will new construction apts push other smaller landlords out?

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