Older multifamily near university with boom of new apartments

[Bradley Stidham]

Hi,

I have been browsing around and searching but haven't seen this discussed (sorry for any duplication). As an initial statement, while I am interested in perspectives on the Baton Rouge market in particular, this topic should apply equally to a great number of college towns and other similar markets so perspectives from other markets are just as welcome to discuss this issue.

I am interested in starting to invest in rental properties and I am enjoying all of the guides, blogs and discussion topics which I have reviewed so far. With my goals of developing a portfolio of strong cash-flowing properties I am interested in the potential of multi-family properties like duplexes and quads to start my investments.  I am located in Baton Rouge, Louisiana, which is the home of LSU    ( a very large university), along with Baton Rouge Community College and a number of good jobs.

The LSU area has a large number of smaller multi-family units as well as small, medium and large apartment developments.  In the last few years, and continuing now, many new apartment developments are coming online that are focused on students that seem more like resorts than the apartments that I was familiar with...they have amenities like huge pools, lazy rivers, tanning beds, game rooms, full gyms, etc.  Depending on unit sizes, a quick search shows per-room rents of around $450 to $1250 per month along with all of the amenities and other bonuses like advertisements for 1st month free or whatever...that seems to suddenly make a 20 to 50 year old quadplex with something like 2 beds and 1.5 or 2 baths and no fun amenities much less attractive.  While some of the fancy apartments are pretty expensive there are still affordable options and even the less expensive and somewhat older apartments have pools, volleyball, etc. 

There is a lot of information on the new apartment developments and the general consensus is that there may be an inevitable saturation point now or in the near future, at least in the university area but perhaps city-wide:

New and planned apartment construction puts pressure on older units

Baton Rouge multifamily market becoming overbuilt

Baton Rouge student housing boom not expected to last

In this type of environment which is probably common in many college areas and even non-college areas, with a large number of available units and the potential of acquiring a less flashy property, is there much of a future in investing in that type of smaller multi-family property? If the market truly is saturated, even the new fancy apartments will have to fight for renters with more concessions and rate wars.

For example, here is a property that was recently on the market and if I remember correctly its listing price was $210,000 or $220,000 and I found a couple of similar 2 bedroom units renting at $750 so I will assume that to be the market rate here. Example Quad property

Here is a current 7 unit rental for sale at $630,000 with a neighboring unit renting for $900 a month with 2 bed 1.5 baths, so that may be the prevailing rate there. 7 unit condos for sale

I am not interested in these properties in particular, but just want to provide them as examples if anyone wants to take a look and compare them to the other apartments in the area.

I suppose that at the right price you can make a case for any purchase, but the competition for tenants (with perhaps a need to be more flexible on tenant quality) and the need to keep rent rates stagnant or lower them to ensure high occupancy seem like troubling considerations.  I would like to hear feedback on this kind of situation.  

I am not necessarily married to the idea of buying in the college heavy areas, so do the experienced people here think the factors above should send a new investor running away from the university area towards a different area of town or different type of property?

Does this environment suggest to anyone that SFRs are a better target (with all things being equal and outside of a great purchase deal)?

Thanks and I am looking forward to input from any and all!

[Tyler Ansell]

I wouldn't consider these new, big shiny complexes competition to the mom and pop units. These guys are huge REITs or other mega investors that need to generate 400-600+ tenants a year. LSU has 30k students alone, not to mention staff and surrounding business employees. There's plenty of tenants. You only need 10 people. 

Find the best deal and run with it, good tenants are everywhere.