How much does location matter when buying an apartment complex?

Question

We're looking into raising money and purchasing an apartment building.  If I were to purchase a home again where I live in Southern Florida, I would buy on or near the beach, because I see the value in location.  Does it matter as much if I'm looking into buying an apartment complex?  Part of me thinks it could be better possibility of appreciation, but not sure if it matters.  Also, I know if the rental market for some reason goes down, they are already higher rents on the beach, so would it be affected negatively in that case?

Lennon Lee · Answer

Lynzie,

Location is paramount. If you could only base your investment decision in one single item then it should be location. And before some people come after me for putting it that way, I am talking in general terms. Every investor has different goals, strategies, risk tolerance, etc and it all will affect how they decide to go about their acquisitions.

That being said, when talking commercial real estate you ultimately have one goal: keep your income as high as possible and your expenses as low as possible which then translates into a higher NOI and in consequence a higher value of the property. Is as simple as that.

Nothing gives us apartment investors more confidence than a location (market and sub-market) where job growth and population growth are at least above national average. We look at this metrics (among others) as fundamentals that very much so indicate a healthy market (healthy location) where not only there will be high demand for rental units but renters will actually be able to pay rent and even pay a premium for more modern (or renovated) units, giving us the opportunity to add value to our properties that way.

I hope this helps. Happy investing!

Keith C. · Answer

Location always matter. Exit strategy is as important as Cash Flow.

PM if you like I have a  good location in Tamps where  rents are midrange  and comps are great . The neighborhood already started gentrification  offering solid cash flow projections.The deal offers both solid income and a strategy for a profit at exit.

Chris Tracy · Answer

It's the first thing my team looks at when looking for deals.  Unfortunately, most people treat market analysis as an afterthought.

Jeff Kehl · Answer

@Lynzie Mackey If you ask real estate investors if location is important they are pretty much always going to say yes. But here's the thing. I guarantee you will not be able to buy an apartment building near the beach in Fort Meyers that will cash flow. The market is just too hot right now. Yes it might still be a good investment if the market continues to rise but it's harder to guarantee that.

If I were you I would start looking east down the major highways to where the workers live.

Go into a restaurant and ask your waiter/waitress where they live and that's where you want to invest for cashflow.

Rod Khleif · Answer

@Lynzie Mackey

Hi Lynzie, just like with single family homes the saying "location, location, location" applies to multifamily as well.  Put yourself in the shoes of prospective tenants and the number one thing for them will be location.

Over the course of buying 2000 homes & apartments I've bought many properties in poor (D class) locations.  Many houses I purchased often cost less than $5,000 and the tenants they catered to were such a headache I even donated a few houses for the fire department to train in.

Keep in mind location in the submarket will often dictate who you cater to.

Near downtown/jobs?  You'll cater to young/working professionals

Near a university?  College students

In the suburbs of a great school district? Families

Properties near the beach in southern Florida are often going to have low cap rates and not much value add.  Don't be afraid to look inland to find some great deals.

Bjorn Ahlblad · Answer

Location is not just about close to beach etc. "Safe neighborhood and walk to restaurants and shops" is a great location!

Grant Rothenburger · Answer

@Lynzie Mackey Location is still extremely important. Also, never buy for appreciation.

Account Closed · Answer

Location is very important.

I wouldn't ever recommend buying a property purely for expected appreciation. The cash flows should support the purchase. That said, I would recommend being strategic about your target locations. Try to find areas with sustainable employment, job growth, and population growth. DRIVE the markets. If you think about it, you are providing a product to your tenant. What type of tenant do you want in your property? What level of income must they have to achieve your expected rents? The location is one key variable that attracts the tenant.

Todd Dexheimer · Answer

Buying in the right location, in the right asset class will often allow for better cash flow and overall profits than the perceived "great deal" in a bad location. The bad location, may get you a 10 cap on paper vs a 6 cap for the good location, but the value you can add, increased rents and being able to actually collect rents will make up for it in the end

Henri Meli · Answer

@Lynzie Mackey Location is very important for many reasons, in addition to what was said, I'm adding a few:

1. If you buy in the bad part of town, you will have issues attracting quality tenants. Tenant quality will make or break your business as well as your "love" for the business. I know people who have quit the business, because they had a string of bad tenants and couldn't take it anymore.

2. Location also determines the demographics of your tenants. Are you buying near campus? You tenant base will be students. Are you buying near downtown? Are you buying in an area best suited for seniors? ... etc. The reason these things matter is because they help you determine the value-add amenities/potential for your asset.

Good Luck !!!

How much does location matter when buying an apartment complex?

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