Solid C Area Investing: Lessons from Due Diligence

Investing in an apartment property located in a solid C area can be a lucrative opportunity if approached strategically. The most important step is to really be familiar with the area you are investing in. For example, before I even think about investing in a market I study the economic drivers, population growth, demographics, rental demands, and local crime (talk to the local police and investors). It is crucial to work with experienced property managers and attract quality tenants to ensure the success of such investments. During the due diligence process of a recent project, several valuable insights were gained, highlighting the importance of effective property management and tenant selection. In this blog, we will discuss the key takeaways and actionable steps to improve operations in a C area apartment complex, ultimately providing a clean and safe environment for tenants to call home.

Capital Expenditure and Property Management Focus:

1. The due diligence revealed that minor capital expenditure was required since the current owner had already invested significantly in the property. Consequently, the focus shifted towards property management as a key driver of improved operations. By addressing the property management shortcomings, the overall performance of the apartment complex can be significantly enhanced.

Evictions and Bad Tenants:

2. The economic vacancy rate exceeding 20% due to backed-up eviction courts and ineffective property management was identified as a primary issue. It was observed that a small minority of tenants were responsible for the majority of back rent. Replacing the existing property manager and actively pursuing eviction procedures against problematic tenants can lead to substantial operational improvements.

Strong Tenant Community:

3. An encouraging sign observed during the property walk-through by our property manager at night was the tenants' strong sense of community. Some tenants were even prepared to intervene and report unfamiliar individuals. This strong sense of community and vigilance is very promising.

Dealing with External Factors:

4. The proximity of a liquor store raised concerns about its customers potentially loitering around the property. Installing a gate can discourage outsiders from lingering, thereby maintaining the integrity of the apartment complex and reducing unwanted foot traffic.

Smoking Policy:

5. To ensure a clean and pleasant environment, implementing a strict no-smoking policy within the units is essential. Charging tenants a fine of $100 for each cigarette found outside their units will motivate compliance. If tenants claim the cigarette belongs to their neighbor, encourage them to communicate and resolve the issue amongst themselves.

Enhancing the Play Area:

6. Utilizing an empty lot to expand and improve the existing playground can attract families and create a positive environment. Instead of installing a basketball court that may attract a potentially disruptive crowd, consider adding seating areas where parents can comfortably watch their children play. This will help cultivate a family-friendly atmosphere, attracting stable tenants.

Conclusion:

Investing in an apartment complex located in a solid C area requires careful consideration and proactive measures. By partnering with experienced property managers and targeting great tenants can help ensure a great experience for all stakeholders and tenants. Ultimately, the goal is to provide a clean and safe environment that tenants are proud to call home.