Location, Location, Location

When investing in apartments, it is no secret that a project’s success is often tied to its location.  Location can broadly be broken down into two categories, the properties’ market and its submarket/neighborhood. 

As it relates to the overall market, we have a few rules that we live by:

       I.         We want to see a population of at least 500,000 people in the MSA (preferably 1 million people.)  The obvious reason is that you need a deep enough renter pool.  As important, we are drawn to markets that are less populated than primary markets and can offer a greater yield yet, they are not so small that there is not a competitive amount of liquidity. 

     II.         There needs to be diversity in employment, particularly among the markets with populations of less than 1 million.  We do not want to have a reliance on employers across just an industry or two. 

    III.         Growth!  We want to be in markets that are trending up.  Follow the jobs – particularly higher paying jobs as those opportunities trickle down to family migration, and additional employment.   

A properties’ submarket is equally as important to that of its overall market.  Surrounding retailers are a good quick indication or location quality.  It is easy to see a Whole Foods and identify that the location is stronger than one near a Food Lion (nothing against Food Lion!) A few tips when looking into submarket:

       I.         Relatively high median home prices in a 1-3 mile radius is a big positive.  If the leap to the cost of homeownership is significantly greater than that of its rents there is often runway for rent growth and/or reason to believe that turnover should be lessened by people opting to buy.

     II.         Particularly among assets that are not in an “A” or “B” location, access is critical.  How are your tenant’s accessing the property?  Do they have multiple points of entry?   Is there visibility off of the main road?  These questions are asked with the intention of limiting crime.  You really want to avoid properties that are tucked away in challenged neighborhoods that can become breeding grounds for undesirable activity.

With every investment, there will always be an element of risk.  To be able to create value, you may not be able to check every single box.  With that said, most challenges associated with location should be identified upfront and advanced with caution.