Are rental properties a good investment? If you’re looking for a smart investment with potential for a sizable ROI, buying commercial property to rent out may be the right opportunity for you. In this series, we’ll be covering the basics of owning rental properties, and we’ll explain why learning how to invest in commercial rental properties could be the best business decision you ever make.
What is the difference between a single-family property and a multifamily property?
Real estate investors can see a return on investment regardless of what types of investment properties they purchase. Whether you own a multifamily or single-family property is a personal choice, and there are pros and cons for both. We’ll share some insights and comparison information to help you determine what the right real estate investment is for you.
Single-Family Rental Properties: Pros and Cons
A single-family rental property is a residence for one family, person or household. Single-family homes have residential zoning, so they may not be the right fit for you if you’re specifically interested in buying commercial property for rent. Here are some things to consider if you’d like to invest in single-family property:
Single-family properties generate less income compared to multifamily properties, simply because there is only one to three units.
Vacancy periods will be more costly because you’ll generate little to no monthly income depending on the number of units your property has.
Because there are fewer tenants, property management and ongoing maintenance are less time-consuming with single-family properties.
The upfront cost of a single-family property can be lower, depending on square footage and location.
Real estate investors purchasing residential property to rent out will need a residential real estate loan, which is less complicated and often less expensive than a commercial real estate loan needed for multifamily properties.
Multifamily Rental Properties: Pros and Cons
Multifamily rental properties contain multiple units, each of which is a private residence for a person, family or household. Multifamily properties can be more complex to buy and manage, and if you’re wondering how to invest in rental property, you should understand the pros and cons of owning a multifamily property:
More units bring in more income, which is why commercial rental properties are a good investment.
Turnover and vacancy are less costly because other tenants will still generate monthly income for you.
Property management can be time-consuming and expensive compared to single-family properties since there’s more tenants. Additionally, more units means more plumbing and appliances that can potentially break and require additional maintenance.
Buying commercial property to rent out can be more expensive upfront, especially if you’re looking at a large property with many units.
Multifamily properties have greater opportunities for appreciation since each time you make a repair to the building or a common area it forces real estate appreciation on each unit in the property. This makes expensive building repairs, such as a roof replacement, more cost-effective in a multifamily rental property.
Investing in a multifamily property will often require a commercial real estate loan. In contrast with the relatively fixed terms of most residential loans, commercial real estate loans are more flexible and negotiable. Interest rates and repayment terms can vary greatly, so investors have many options to explore and find the right loan.
Are rental properties a good investment for YOU?
Whether you choose to invest in single-family or multifamily properties (or both!), you will have the opportunity to find success and generate income. If you have questions about the differences between single-family and multifamily investment properties, reach out to our team. Learn more about how to buy a rental property, and browse our listings to find commercial properties you can buy to rent out.
Learn More About Buying Commercial Properties to Rent Out in Our “Multifamily Basics” Series:
If you’re interested in building or investing in multifamily properties, it’s important to consider more than just units per square foot, rent rates and utilities. Certain amenities and services can be enticing to potential renters, and maintaining high overall service quality is vital, if less tangible. Providing flashy amenities might draw tenants in, but offering high quality and responsive service will keep residents satisfied.
As you consider what amenities and services to offer at your multifamily rental properties, think about what those offerings will cost and if your tenants will find more value if you invest that money elsewhere in the property. Read on for an explanation of the differences between amenities and services, along with our recommendations for how to save money while offering more value to your tenants.
What is The Difference Between Amenities and Services?
“Services” and “amenities” can start to seem like industry jargon, and many people think there are no differences between amenities and services. However, there are a few important distinguishing details that set them apart.
Amenities at Multifamily Properties
Typically, amenities are physically tied to the property and are permanent. Common apartment amenities include:
Swimming pool
Dog park
Rooftop patio
Clubhouse or party room
Fitness center
Theater room
Garages
Balconies
Bike storage
Laundry room
Fireplaces
Playground
Coffee shop/free coffee
These amenities cannot be added or removed without serious renovations. Some have steep up-front costs and ongoing maintenance expenses. Anyone interested in investing in multifamily properties should keep those costs in mind. If you have the budget for them, amenities can provide nice perks for residents. They can give your whole property a luxury feel and entice people to sign a lease. But are they worth a long-term investment?
Services at Multifamily Properties
In contrast to amenities, services are not permanent and are typically less expensive to implement. Apartment services include:
Intuitive service ticket system and prompt responses to maintenance requests
Online and recurring payment options
Dog walking, pet sitting and other pet-friendly services
Driving services/airport pickup
Trash valet
Laundry services
Fitness classes (not just facilities)
Upgraded package delivery services
Why Services May Be A Better Investment
Residents are less concerned about fancy amenities they may not use anyway and more interested in services that increase convenience and ease. People are busy, and they want ways to save time during their daily routine. Investing in the features and services people actually want will give you more satisfied tenants and a better return on investment.
We know there’s a difference between amenities and services, but what does that mean practically when you’re investing in multifamily properties? If providing amenities and services is so expensive, are rental properties a good investment at all? We believe if you focus on high-value, low-cost services and amenities, you’ll find it’s worth it to own multifamily properties.
Ideas for Investing in Your Service Standards
One of the easiest ways to increase your service standards is to optimize your current offerings and focus on efficiency. You could hire more maintenance technicians so service requests are completed faster or simply evaluate current processes to make sure you’re maximizing your resources.
Introducing more services can be gradual, and some ideas may require very little investment. For example, you could partner with service providers like pet-sitters, dog walkers, drivers or housekeepers. You wouldn’t need to hire a whole new crew of staff members — simply facilitating the connection between your tenants and these services is, in itself, a service.
You could also try piloting services by offering them as limited time offers on specific days. A trial is a great way to see if residents are interested in certain services, and they’re a way to test how much time and money is needed to make a service available to tenants.
When you start implementing changes, even small ones, residents will notice and appreciate the attention to detail. Soon, current tenants will start to spread the word about their great experience living at your property, and your vacant units will start to fill up.
Are Rental Properties a Good Investment? Find Out More
If you’re curious about purchasing commercial real estate to rent out, or if you’re looking for ways to make your multifamily rental properties more successful, reach out to us. Our commercial real estate experts are knowledgeable about industry trends and tips, and we would love to answer your questions. Contact us today or reach out to Jared Husmann directly at 515-334-4900.
Buying an investment property to rent out to tenants comes with no guarantee of seeing a return on investment. However, selecting the right property and following industry best practices will help you acquire a real estate investment that generates income. We’ll discuss how to buy a rental property and how to make improvements that add value to your properties.
What You Need to Do When Buying an Investment Property to Rent
It can be very difficult to know if rental properties are a good investment and whether a few fixes around the property will be worth it in the long run. The following scenario is just one example of the research required for commercial property investing. Take a moment to picture this:
You find the basic details of a listing, including the price of the property, rent price point, expenses, a drone video and virtual tour of the property. By just looking at the listing, you have almost all the initial information you need to know this could be a great property to invest in. You schedule a tour of the building, and as you walk up to the building, the broker hands you a report with more details about the property, along with information about comparable properties in the area. The report features a range of practical data points that confirm your initial assessment about the property being a great investment, and there are even recommendations about where you can add value!
Imagine the report gives you information like this: A property in close proximity recently sold for $15,000 more because it had a brand new boiler system installed. Directly next to this fact is a cost break-down for replacing a boiler system. The report tells you that in your area, it costs around $10,000 for a new boiler system. With this information, you know you will be able to immediately add $5,000 in value by replacing the boiler system at this property.
The report might also tell you that another similar property nearby is earning lower rents per square foot, but perhaps that property has laminated countertops. The property your considering has granite countertops, so it’s able to achieve $10 more in rental income per unit per month.
This is the power of data. And with continuously improving data collection techniques, reports like the one described above will be the standard in a sales transaction within 10-15 years — if not sooner!
Of course, this is just a story, but it gives you an idea of the extensive research and information gathering that goes into a purchase before deciding if you want to invest in a rental property. As a buyer, seller, owner, real estate agent or lender, you must rely on data like this, and it would be smart to start tracking the data you have now.
How can you do this? Simply look for data and record it! Here are some data collection tips for aspiring rental property owners:
Every time you see a property for sale, whether it’s a sales brochure or an offering memorandum, keep the information.
Save documents in a file, and create a spreadsheet to record data points.
Utilize public records — tons of data is readily available online.
When a broker sends you an update on what is happening in the market for rents, sales, occupancy, etc. keep the information and add it to your data spreadsheet.
Utilize these data points to enhance your
knowledge of your own property or properties, and pay attention to the overall market.
Soon, you’ll be able to find and recognize patterns in the market.
As you’re collecting and storing data, don’t get lost in the weeds. Data is abundantly available, but not all data points will have an impact on the overall market, a particular sale or your bottom line. Once you get started, it will be easier to see which data points are most crucial to your success.
How to Invest in Rental Property Step 1: Do Your Research
The amount of data available can seem overwhelming when you’re buying an investment property to rent. As you begin browsing real estate listings, start with in-depth research as demonstrated in the story above. Some things to consider while you’re collecting data about a property:
Collecting Real Estate Data From Listings
When you find a multifamily property listing that seems promising, the listing itself will provide large amounts of helpful data, like number of units, square footage and historical information about past sale prices and taxes. However, some information is not easily accessible on online listings. You’ll need to reach out to an agent to arrange a tour in order to see property details like fixtures, finishes and potential subtle signs of damage or neglect
Collecting Real Estate Data From Agents
If you’re interested in a multifamily listing that’s missing things like interior photos or other important information, reach out to the listing agent. No question is off-limits. An agent will be able to answer your questions and/or schedule a tour so you can see the property for yourself.
Collecting Real Estate Data From Property Tours
Seeing a property with your own eyes is often the best way to figure out if it will be the right investment for you. Take notes when you tour a property. Keep an eye out especially for things you could easily upgrade in order to add value, attract more tenants and increase rent prices to earn more income. Here are some examples of easy opportunities to add value to a property:
Replace old, outdated appliances
Remove or refinish worn-out flooring
Install new, efficient heating/cooling systems
Replace the water heater
Upgrade the countertops
Utilize smart technology, like a digital thermostat
Upgrade windows
Add simple, attractive landscaping
If you’re looking for a few improvement options that are less costly than replacing major property items, start with a quick, fresh coat of paint and a few new light fixtures, and you’ll be on your way to adding value to your property. These types of upgrades can be very easy and inexpensive while making a positive impression on potential tenants. Also consider what home design features are currently trending, like electrical sockets with USB ports or fixtures with matte finishes. Adding a few modern details can be a big selling point without breaking the bank.
How to Invest in Rental Property Step 2: Crunch Some Numbers
If you view a property that needs some upgrades, don’t let that scare you away! A multifamily rental property that needs renovations can be a very wise investment, but just like our example listed above, it’s important to figure out exactly how much value you can add to the property with upgrades, how much those upgrades will cost upfront and how long you’ll have to wait before you see a return on investment.
Some upgrades will be very expensive but will increase property values exponentially, while some renovation projects may not be worth it in the long run. As you consider what to upgrade, consider both tenants and future buyers.
This part of the research process can be tricky, but there is a lot of data available if you’re willing to take the time to look for it. It’s essential to be accurate while making these calculations, so don’t forget to consider the following multifamily rental expenses:
Price of materials, fixtures, appliances, etc.
Labor costs
Taxes and insurance
Property management
Vacancy
Utilities
Ongoing maintenance costs
Are Rental Properties a Good Investment?
There is no simple answer to this question. The future of your success in the multifamily housing real estate industry depends on data collection. Savvy real estate investors collect data and analyze market trends to make strategic decisions about real estate purchases. In order to see ROI, you’ll need to study information from third-party sources and historical data. The more you know about past trends, the more you’ll be able to accurately predict future patterns in the commercial real estate industry.
In short, if you collect data, study the market and create a smart strategy, buying an investment property to rent out can be very profitable. If you jump in without doing the right research, you can easily end up wasting money on a poor investment.
Learn More About How to Invest in Rental Property in Des Moines
That’s why we’re here to help steer you in the right direction. Contact us or reach out to Jared Husmann at 515-334-4900 if you have any questions about how to buy a rental property, or view our commercial property listings if you’re ready to get started.
Co-living is one of the newest commercial real estate trends that appeals to millennials because it fits in with the millennial lifestyle values of travel, adventure, minimalism and connection. “We living” is gaining popularity in larger cities like New York, Los Angeles and Washington D.C., but could a co-living property find success in the midwest? If you’re interested in buying commercial property to rent out in the midwest, read more to find out if a co-living property could be a good investment for you.
“We Living” and Midwestern Markets
If you perform a location search on coliving.com, a co-living search platform, you’ll see North America’s co-living offerings limited to a handful of large cities on the east and west coasts. It makes sense that this concept is thriving in places with high population density, astronomical rent costs and a high percentage of young professionals.
Commercial real estate trends often start in bigger cities and funnel down into smaller markets later. We think it’s time to start thinking about bringing “we living” to the Midwest. In smaller Midwestern cities, the co-living concept is untested and riskier, but we think it could be successful if executed strategically.
Co-Living Risks in Midwestern Markets
People who have grown up in the midwest enjoy their own space. Even urban areas in the midwest are less dense than big cities. The communal elements of co-living properties may not appeal to people with midwestern mindsets.
Rent is already inexpensive in smaller midwestern cities, so affordable co-living options might not stand out as much as they do in places like NYC and LA.
Although rents are generally more affordable in smaller midwestern cities, downtown studio apartments and one-bedroom units are still often too expensive for the average single young professional. A co-living property would offer an affordable alternative, and units would fill quickly due to high demand for low-cost downtown housing.
Oftentimes, there is a large population of recent graduates and young professionals living in college towns like Iowa City, Iowa, and Lincoln, Nebraska. Opening a smaller-scale co-living property in a mid-sized city would be a great way to gauge interest for similar-sized markets.
Also suggested is to target areas with employers who hire millennials. For example, Epic Systems in Madison, Wisconsin, employs 10,000 people, mostly millennials. Madison would offer a great place to test a midwestern co-living property.
Contact Commercial Real Estate Experts
Daring investors might be able to achieve excellent ROI by taking advantage of new commercial real estate trends like “we living.” If you’d like to purchase or learn more about commercial real estate with the aim of developing a multifamily apartment complex or co-living property, contact Jared Husmann today at 515-334-4900, or contact us.
Discover Everything You Need to Know About This Trend in Our “We Living” Series:
“We living” is one of the newest commercial real estate trends, and it’s continuing to grow. Co-living properties are popping up in big cities all over the country. The “we living” concept is distinct from traditional apartment living because it offers a dorm-style environment where tenants rent a private apartment but share common spaces like large living areas, patios and communal laundry. “We living” buildings also encourage residents to connect with one another by hosting community events, classes and social opportunities.
If you’re interested in buying commercial property to rent out, should you consider buying or building a co-living property? We’ll share some information about why “we living” properties are a smart investment, along with some risks to consider before you invest in your own co-living property.
Why Co-Living Properties Are A Good Idea
More Units Per Square Foot
Co-living spaces typically feature smaller units. Because of the focus on shared common areas, builders can design individual living rooms smaller in each unit. Additionally, the co-living concept appeals to many young, single professionals who will choose to rent a studio or one-bedroom apartment to minimize expenses. When units are smaller, developers can build more units into each co-living property, which will generate more income for the commercial real estate owner.
Fewer Appliances, Cheaper Upkeep
The “we living” concept involves providing more communal features and amenities, so fewer appliances are needed in each unit. A microwave, small cooktop and fridge may be more than enough for a resident who can also use the large, well-equipped communal kitchen down the hall. Additionally, a community laundry room prevents the need for a washer and dryer in each unit.
Co-Living As A Growing Commercial Real Estate Trend
The “we living” concept is new and novel, but we are seeing a growing urban trend that is continuing to spread. Owning a co-living property is being on the leading edge of the trend, and apartment buildings offering this living concept will be seen as unique and attractive, especially in unreached markets.
Risks of “We Living” Properties
More Bathrooms, More PlumbingThe flipside of increased earning potential in a building with many units is the additional cost of plumbing installation and maintenance. With more units, there will be more bathrooms to maintain, and potentially more maintenance technicians on staff to address issues promptly.
Steeper Upfront Costs
“We Living” is advertised as a move-in ready space for tenants, and units are expected to be fully furnished and tastefully decorated. Purchasing furniture and decor for every unit will start to add up. And with residents looking for more amenities, you’ll need to invest in hiring housekeeping staff, event planners and other customer service staff.
Higher Potential Vacancy Rate and Turnover
Forgoing the traditional year-long lease means accepting higher turnover and vacancy rates. However, the potential of renting vacant units by the night means bringing in income with a unit that would otherwise not make you any money.
Not Yet Popular in All Cities
The co-living trend is mainly an urban phenomenon at the moment, so introducing the concept in smaller cities is riskier. However, we see this trend continuing to grow throughout the coming years, and it may be wise to adopt the concept early, in order to enter potential markets without competition.
Should You Own a Co-Living Property?
If you’re interested in buying commercial property to rent out, it’s worth looking into the “we living” concept. As you consider the pros and cons of owning a co-living property, reach out to Jared Husmann with any questions you have. Call 515-334-4900 or contact us today to learn more about our commercial real estate opportunities.
Learn More About This Commercial Real Estate Trend in Our “We Living” Series:
Introducing the biggest up-and-coming commercial real estate trends: “we living” apartment buildings and co-living properties! The “we living” housing concept is a growing trend in big cities like Washington D.C. and New York City.
What is “We Living”?
The “we living” concept began in 2010 with the genesis of companies like WeWork and the popularization of co-working spaces. In 2016, WeWork launched WeLive, an apartment building with the same approach as a co-working space. At WeLive’s co-living properties, residents rent fully furnished and decorated apartments and enjoy dorm-style features like common areas and shared laundry facilities. But they also provide extra amenities, such as game rooms, hot tubs, cleaning services and happy hours with free drinks.
The amenities are a nice perk, but “we living” apartment buildings are distinct from traditional housing mainly because they are designed to intentionally foster community. They feature shared spaces and opportunities for tenants to meet and connect with their neighbors. This co-living trend has not yet taken root in the midwest, but it has the potential to become very popular and very lucrative among the commercial real estate industry. Learn more about the concept to figure out if it might be a profitable real estate investment for you.
What makes “we living” the next big commercial real estate trend?
Co-living is still a novelty, and it is relatively unheard of in the midwest. We will continue to see more co-living properties pop up as the “we living” trend grows. Below are a few key features that make the “we living” concept distinct from traditional apartment rental properties.
More Community
You’re stepping into instant community when you move into a “we living” property. These apartment buildings encourage you to mingle with your neighbors by providing comfortable common spaces and by hosting social events. The WeLive website shares, “Our mission is to transform the rigid and isolating housing model of yesterday into a flexible and community-driven experience for today.”
Responsive Staff
Anyone who has lived in a traditional apartment complex is probably used to waiting days for a property manager or maintenance technician to respond to requests and service tickets. “We living” properties advertise full-service concierge and housekeeping staff, promising prompt and exemplary customer service.
Classes & Events
Co-living properties schedule official events for members and use systems like chat threads and message boards to facilitate residents arranging their own social events. Some examples of classes and events held at co-living properties include fitness classes, happy hours, book clubs, cooking classes and crafting groups.
Flexible Leases
“We living” properties do not lock you into a traditional year-long lease. In fact, some allow short-term stays, as little as one night or one week. One company, Common, advertises seamless lease transfers between multiple properties in cities like Los Angeles, New York City, Chicago and Seattle. Imagine the ease of relocating without the hassle of apartment hunting in a new city.
Why Does Co-Living Appeal to Millennials?
Society as a whole is less concerned about collecting material possessions and more interested in travel and experiences. This is especially true with millennials. Co-living options encourage the cultural shift toward minimalism by providing fully-furnished and decorated apartments with flexible leases that allow for the “digital nomad” lifestyle popular among millennials. Millennials also crave novelty, excitement and opportunities to connect with one another. Young people are finding it increasingly difficult to make friends after college, and co-living spaces provide built-in opportunities to meet new people.
The co-living concept appeals to young adults who are seeking a similar, but elevated, dorm-style living experience after college. We living offers more privacy and more amenities than a dorm while providing the same type of convenient social space.
The idea of sharing space and socializing with neighbors may seem unappealing, but the co-living concept does not imply sharing your entire living space with strangers. Units in “we living” buildings are private, with individual bedrooms and bathrooms just like a typical apartment unit. The difference is in the common areas and events, which are available to encourage socializing but are always optional for residents.
Learn More About Commercial Real Estate Trends
We’re always doing our research on different things going on in the commercial housing markets, and you can count on us to stay on top of the latest multifamily property trends. Reach out to Jared Husmann at 515-334-4900 if you are curious about commercial property investment opportunities.
Find Out More About Co-Living Properties in Our “We Living” Series:
