Why Would Anyone Want to Invest in Apartments?
By Darell Schmidt, Allante Properties, LLC, Denver, Colorado
November 21, 2016
Because it’s the smart thing to do! Apartment investing is expected to generate strong cash flows and increasing values in the years ahead. Investing in apartments can yield significant cash flows and appreciation in value if done properly. Very simply, the forces of supply and demand are driving apartment rents and values higher and higher. These forces are well aligned and include:
1. Apartment supply of rentable units is in short supply and vacancy rates have fallen to decade lows. Even amidst periods of varying supply, apartment investing has proven to be an excellent alternative to other investments, over time.
2. The continually increasing demand for rental apartments is creating an unprecedented opportunity. As absorption continues to increase, the lack of supply, coupled with increasing demand, causes rents to rise. As rents rise, cash value increases and so do property values. These conditions generate strong cash flows and long-term capital appreciation, especially over the long term.
3. Interest rates are extremely low, and locking in permanent financing at low rates will enhance cash flows as monthly mortgage payments become less and less relative to the income being produced. Plus, the principal retirement that occurs with every payment is increased over the same payment at a higher interest rate, so the equity in the property builds faster. Alternatively, interest-only financing can produce higher cash flows.
4. The Echo Boomers and Generation Y, children of the Baby Boomers, are larger in numbers than the Baby Boom Generation, and the impact on housing demand as they mature will be significant in the years ahead. A constant supply of households is being fed into the marketplace, with rental housing getting a significant share as the home ownership rate continues to decline and more and more people become renters.
5. Homebuyer lending standards have increased significantly in the wake of the subprime crisis, and now income ratios, credit scores, and higher down-payments are preventing some buyers from buying a home, leading them to rent apartments. With inventory levels at their lowest levels in decades, the new home sale market is experiencing significant price increases because the supply is restrained. Recovery in the homebuilding and resale markets is occurring rapidly, but there seems to be an endless supply of renter households.
6. Demand from immigration in the years ahead is also expected to be a source for all housing types, including apartments, for sale condos, townhomes, and single-family homes.
Basically, apartments in the U.S. are expected to be dramatically more valuable in 2017 and beyond than they are currently. The principles of supply and demand are ever-present in the apartment market, allowing increasing cash flows and appreciation to apartment investors.
Allante Properties can help you deploy your capital into apartments in Denver, Colorado. We specialize in new development, producing Class A assets in top locations. Allante has relationships with the best general contractors and subcontractors in Denver, who can design, build, and deliver expertly constructed apartment buildings that are designed to create long-term benefits.
Developer, Darell Schmidt is a second generation Denver native and is presently managing partner of Allante Properties, a market leader in pioneering real estate investment opportunities for private investors in Denver apartment developments. He focuses on close in locations close to the urban core that display high walkability scores which translate to higher returns for his investors.
Be sure to call Darell Schmidt at 303-359-1210 or email him at Darell@AllanteProperties.com.
Please visit Darell Schmidt on his websites and blogs;
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