Navigating Multifamily Development: Lowering Costs & Strategies for Success
6 Min Read
Written by: Parcel Pending
If you’re an individual investor ready to join forces with other investors or to move into commercial real estate investing, a smart first step is considering buying a multifamily property. Since a multifamily property is simply two or more residential units, it’s both less complicated than other asset classes (retail, hotels, or office space), and it’s familiar to homeowners.
Moreover, banks typically finance these investments in much the same way that they issue mortgages with competitive interest rates. The key competitive advantage, however, is that multifamily investing is seen as more stable, even in an economic downturn. When planning out a multifamily investment strategy for a potential rental property, investors should be mindful of these eight considerations:
1. Demand Has Outstripped Supply
Further adding to the rosy economic future of multifamily development is that demand for rental housing exceeds supply. In the years 2010-2019, the percentage of renters jumped from 32% to 36%1. During the same period, over 4 million new households were formed, leading to historically low rental vacancy rates and an investment opportunity for new multifamily investors and developers.
2. Crunch the Numbers
Of course, before purchasing an investment property, you should carefully crunch the numbers and calculate your expected net operating income (NOI) as a multifamily investor. In general terms, NOI is the difference between your estimated monthly rental income and estimated monthly expenses of your multifamily property. However, it is prudent to expand your revenue base beyond rental income to boost your NOI and improve the overall return on your real estate property investment.
Parcel Pending offers smart, electronic lockers that are a value-added differentiator. Further, it offers innovative pricing options including a “no money down” option and a monthly subscription option, helping real estate investors avoid an upfront capital expense.
Assuming you move forward with owning one investment property or even a facility with 200 units, let’s take a deeper dive into ways to ensure success with your rental property.
3. Focus on Property-Wide vs. Unit Upgrades
It’s easy to focus on unit upgrades that boost appeal, but savvy multifamily property managers are aware of industry trends and recognize that facility-wide upgrades tend to be more cost-efficient than individual unit upgrades.
For example, installing a high-efficiency dishwasher is a benefit to both the resident and the environment; your investment would be a staggering $449.00 per unit. However, investing in an efficient new water heater at a replacement cost of $5,000.00 with 30 units is a very reasonable expense of just $167.00 per unit.
By the same token, take a closer look at lighting. LED lighting in common areas makes them bright and modern. The latest trend is adding color-changing LED tubes to party rooms, fitness centers, and parcel centers.
Welcoming potential residents to the property with wood or tile flooring also makes for a positive first impression. Since most impressions are solidified within the first 3-5 seconds, it’s critical that the initial imprint be a positive one.
Are you a property manager looking to improve your curb appeal? Check out our blog post on how you can decorate your apartment complex lobby to make it more appealing to current and prospective residents.
4. Add Virtual Walk Through Capabilities
With the COVID pandemic limiting in-person visits, the ability to view and rent units at your property virtually is now a necessity. One Chicago-based company that provides a real-estate showing property management platform, has managed almost 150,000 virtual tours since April and over 30,000 in just May and June2!
Compelling too is that recent statistics demonstrate that 67% of people want more businesses to offer virtual tours. And customers aged 18 to 34 are 130% more likely to book a place if there is a virtual tour3. According to a new report published by Redfin, agent-led video tours quadrupled in March of 2020, and experts predict a similar pattern to continue in the commercial real estate market4.
5. Seek Innovation and Competitive Advantages
As multifamily housing becomes a longer-term choice for people of all ages and incomes, innovative amenities are rising as a key differentiator.
With U.S. e-commerce sales expected to rise a staggering 35% to about $190 billion translating into a potential 486 packages delivered per week to multifamily properties, parcel management has turned into both a “must-have” amenity as well as a competitive advantage5,6.
Residents today have higher expectations as they not only have parcels but grocery and pharmacy deliveries too. Parcel Pending reports more than 40% uptick in requests for refrigerator lockers vs. a year ago. It’s clear that lockers are a key multifamily asset, an important consideration when designing or upgrading a property.
6. Incorporate New Amenities in the Design/Build Stage
New commercial real estate developers recognize the shifting economic and lifestyle changes and incorporate them from the “get-go.” High-speed internet, functional communal areas, and smart lockers, when included in the blueprints, drive down costs.
Some vendors, like Parcel Pending, even collaborate with architects, builders, and owners to design amenities for the property. This helps real estate investors include amenities like smart, automated parcel locker systems as part of construction costs.
Planning to remodel? Check out our blog post on which multifamily interior renovations should be on your list.
7. Balance Resident Attraction vs. Resident Retention
Look closely at the data that brings in new residents as compared to what keeps them there. For example, social media plays virtually no role in attracting residents according to SatisFacts, but it is ranked as the number two driver in retaining residents7. By the same token, top-ranked amenities based upon the 2020 search data of Zumper shows that air conditioning, laundry, and assigned parking top the list in catching interest, while amenities like smart lockers lift lease renewals by 40%8,9.
8. Watch Maintenance Issues
Lack of maintenance and appropriate response times are among the top ten reasons why renters leave multifamily buildings and move into single family homes. Regular maintenance, inspections, and preventative measures help you manage risk, anticipate problem areas, and cement loyalty with your residents.
The keys to success in multifamily housing are to keep costs low, retention rates high, and respond quickly to shifting resident needs. Adding Offering affordable housing with amenities such as smart lockers can contribute to your long-term success.
Take Your Multifamily Investment Strategy To The Next Level
Now that you have some key considerations for investing in and developing your multifamily property, it’s time to start taking next steps to bring your vision to life.
Check out our other blogs posts, such as our multifamily management tips to set yourself up for success. And if you’re ready to talk to a representative today about Parcel Pending’s multifamily locker solutions, pricing options, and locker configurations that can meet your needs.
- U.S. Census Bureau, Homeownership Rate for the United States [RHORUSQ156N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RHORUSQ156N, November 20, 2020.
- Hall, Derek. The Wall Street Journal. Renting an Apartment on FaceTime? What You See Isn’t Always What You Get. (2020, 17 November). https://www.wsj.com/articles/renting-an-apartment-on-facetime-what-you-see-isnt-always-what-you-get-11605627843
- Digital in the Round. 13 Mind-Blowing Virtual Tour Statistics [Updated for 2020]. (2020, September 30). https://digitalintheround.com/virtual-tour-statistics/.
- Redfin. (2020, March 23). Video Home Tour Requests Soar Nearly 500% in One Week [Press release]. Retrieved from: https://press.redfin.com/
- Hererra, Sebastian. The Wall Street Journal. Amazon’s Prime Day Accelerates Shift to Online Shopping. (2020, October 16). https://www.wsj.com/articles/amazons-prime-day-accelerates-shift-to-online-shopping-11602846014.
- Parcel Pending. Black Friday, Cyber Monday, Prime Day – Post-Pandemic Holiday Shopping Expected to Result in Record Package Volume. (2020, September 4). https://www.parcelpending.com/blog/black-friday-cyber-monday-prime-day-post-pandemic-holiday-shopping-expected-to-result-in-record-package-volume/.
- National Apartment Association. What Ranks No. 2 on Resident Survey of Value Drivers. (2017, February 27). https://www.naahq.org/news-publications/what-ranks-no-2-resident-survey-value-drivers.
- Aiello, Julie. Zumper. What Renters Want: Top 10 Most Requested Amenities of 2019. (2020, September 16). https://www.zumper.com/manage/resources/top-10-amenities/.
- Survey results gathered from case studies conducted with residents of Cortland Partners properties. Access the case study here: https://info.parcelpending.com/cortland-case-study-3-0.