Additional Key Factors for Evaluating a Multifamily Opportunity
Dustin Edwards • November 6, 2020
Beyond CAP Rate and GRM, What to Look for in a Multifamily Property
When you are looking for a multi-family property in Long Beach, Lakewood or nearby cities there are intangible factors to consider outside of the economics of the property. When new investors start in multi-family investing they may focus on key metrics such as GRM (Gross Rent Multiplier) and CAP Rate (Capitalization Rate) but those numbers alone won’t tell the full opportunity of the investment.
Getting beyond the metrics is essential whether you are buying a residential multifamily (i.e. 2-4 units) or getting into commercial multifamily units (5+). As we have had the opportunity to not only manage multifamily properties but help our clients purchase them as well we invite you to consider additional key factors to help you in finding the right property for your investment goals.
What Parking is Available?
Even in today’s transformative society with the availability of Uber/Lift and additional mass transit going in throughout LA County parking is still a valuable element of a multifamily property. As you are evaluating your options look to see the following in regards to parking:
- How many spots are available?
- Is the parking covered?
- Are there garage spots in addition to covered parking?
- Would prospective tenants in this area expect to have 1 or even 2 parking spots per unit?
- What is the availability of street parking?
- Are there nearby parking lots for rent if parking is not available?
Parking is one of those intangible items that can keep tenants staying for years and even pay a premium. Of course if there isn’t easy parking available that doesn’t mean the investment isn’t worthwhile as there are apartments in Alamitos Beach that have high occupancy rates and rely on street parking. The key element is to have this as part of your evaluation process.
What is the Laundry Situation?
For those that have primarily lived in or invested in single family homes you might forget to have laundry as part of your evaluation process but we invite you to add it to your list. Having accessible laundry units is one of those items that can save tenants time and have them enjoying your property for the long-haul.
- In-Unit Laundry - We have seen a growing trend of units include in-unit laundry as units are remodeled. Also with new additions of ADUs you could be required to have in-unit laundry. Having in-unit laundry (whether stackable or side by side) is a great added value to your rental property.
- On-Site Laundry - If you don’t have in-unit laundry the next best opportunity is to have on-site laundry. Having on-site laundry adds convenience for your tenants and can provide a modest income stream for you as well.
What are the size of the units?
Rents in Southern California (including Long Beach and Lakewood) have certainly been increasing steadily over the years. What of the largest factors in the gross monthly rent that you can yield is based on the size of the unit (i.e. lease income per square ft). While neighborhood (think those close to the Ocean) certainly plays a factor, in general, the larger the units the higher the rent.
With that being said, consider the following aspects about the size of the units as you look to invest in multifamily properties:
- Are there smaller units available as part of the mix? (i.e. studios or 1 bedroom units) - Studios and 1 bedroom units can help you tap into a younger demographic of renter, early professionals who have a strong income, want to live alone, but can’t quite afford the more expensive rent that is commensurate with a larger unit.
- Who is the typical tenant in the area? - Are the typical tenants in this area in a certain age demographic? Are there a higher concentration of families vs. individuals? Understanding the makeup of the neighborhood can help you analyze what the optimal configuration would be for your purchase.
- How are the larger units configured? - Consider that if the multifamily has a 2 bedroom/2 bathroom units as part of the mix, what is the layout? Are the bedrooms and bathrooms separated so that each has its own bathroom? Well designed layouts (or ability to improve the layouts or even the condition of the units) gives you the options for a wider array of possible tenants.
When it comes to deciding on your next multifamily investment (even if it’s your first) there are many items to consider. To help you understand your options you to call us today at (562) 888-0247 and let us know you’d just like to discuss more about multifamily investing.
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