When comparing “apples to apples” and testing the waters for value, demand, and feasibility, it stands to reason that properties in larger, urban markets would be worth more than those in smaller, rural markets. However, there are both obvious and subtle elements that everyone involved should consider.
Location Within the Country
Sometimes old sayings are the best: “location, location, location.” This is an obvious element and a key one that can impact values and attractiveness of properties to prospective buyers. A rural or urban market in California is, more often than not, going to have higher-priced real estate than properties in similar market types that happen to be in “fly-over” states. There are always exceptions, but the location within the country is typically the first thing worth considering.
Proximal Location
Other major factors to consider are proximity to amenities, services, neighborhood types, and other multifamily properties.
Proximity to services – In nearly all cases, urban areas have many more services in the market than rural areas. That is usually a positive, in terms of value and demand, since multifamily tenants may require grocery, retail, transportation, and medical care, among others, within a very short distance. While it can be a positive to be in close proximity to services, it is important to note that too many services nearby may make the multifamily property have the “feel” of being in a commercial zone, which can be off-putting to many that want to live in a more family-friendly environment. The heavy traffic patterns and sound pollution can drive down rents, values, and demand, making the properties become less and less feasible.
Rural markets tend to have fewer amenities within walking distance. That is an immediate negative that can be seen by lower rents. On the other hand, those same rural markets may be preferable to tenants that want a family-friendly environment, which can increase the demand.
Proximity to other multifamily properties – There is a lot of data that shows similar property types surrounding a subject property is a positive attribute. Again, there are two sides to that coin. The main positive would be that, as mentioned above, it would create a family-friendly-type atmosphere and would not feel like a commercial zone filled with high traffic areas. However, if the surrounding property types are similar multifamily properties with lower rent, it could negatively impact potential gross revenue. Also, if the properties are all similar, but some are affordable housing while others are market-rate, tenants tend to lease market-rate units. Thus, decreasing demand for the subject units and driving down revenue. If, however, the surrounding properties rent at a higher price, then it offers the subject an opportunity to increase rents to something lower than the surrounding properties but possibly higher than what could normally be charged. Therefore, take notice of the surrounding properties, but try to position the subject property near the middle tier of the market. It will not have to compete with lower-end rentals and will have the maximum potential to increase gross income.
To learn more about factors that shape the market, visit www.gillgroup.com.