If you were to randomly ask 100 people which type of area—urban or suburban—will see the greatest rise in the popularity of multifamily apartment complexes, I’d wager that a clear majority would choose urban areas. One reason for this has to do with the widespread perception of suburban areas as places where Americans usually migrate when they’re ready to buy a home and firmly plant down their roots. Our culture tends to associate suburban living with stability, and many Americans see apartment living as the opposite of settling down with a family.
It’s with this reasoning that many people assume that if you’re going to invest in apartment complexes, urban locations offer the safest (and potentially most lucrative) opportunities right now. Many potential investors don’t realize that suburban apartment complexes show strong signs of being excellent real estate investment opportunities down the road. The most important reason is because suburban complexes have lower rents, and lower rents do a good job of attracting tenants, particularly among millennial Americans.
Young Americans Prefer to Rent Rather Than Own Their Homes
While lower rent rates are undoubtedly contributing to the success of suburban apartment complexes, it is important to note that this is taking place amid a social backdrop that involves an increase in renters. Historically, homeownership has been closely tied to the concept of “the American dream.” Before the millennial generation, owning property was one of the surest symbols of economic and social success. But there is plenty of evidence to suggest that, among millennials, the goal of homeownership is fading.
According to a 2013 survey, only 40% of millennials feel that homeownership is an “extremely important” goal. This is a lower figure when compared with prior generations. Millennials, much more than preceding generations, are quite comfortable to rent rather than own. And when millennials seek out rental complexes, data supports the idea that they are flocking to suburban areas in greater and greater numbers.
As an investor, one of your primary concerns when investing in rental property is the supply of potential tenants. If your rental property exists in an area that is lacking in available tenants, the likelihood of you being stuck with empty units is higher. This is true regardless of how appealing the property may be. If you’re left with empty units, your investment will struggle to pay off in the long run.
Suburban Apartment Complexes are Highly Attractive as Rental Options
From an investment standpoint, another concern you should keep in mind is the attractiveness of the rental property in question. As with the previous example, this is something of a no-brainer: If your rental complex can’t attract tenants, then it has little chance of paying off as a successful investment.
Perhaps the most attractive aspect of suburban apartment complexes—and certainly what is mostly responsible for drawing in millennials in large numbers—is that these complexes are relatively more affordable than their urban alternatives.
Though lower rents may be a potential cause for worry among some investors, this is actually not a serious concern. Lower rents generally translate into fewer empty units, and so even though investors may receive less return on a per unit basis, they still maximize their investment because they ensure that they fill their complexes to full capacity.
For those millennials who are strapped with substantial student loans—the average student loan debt is about $35,000—the lower price tags attached to suburban apartment complexes are particularly attractive. Many millennials are very willing to deal with a somewhat longer commute if it means that their rent payments are gentler on their wallets. Simply put, the lower rents that tend to characterize suburban apartments (at least when compared with urban apartments on a square foot basis) are the main factor driving the demand for such apartments.
The trend is unmistakable: Suburban apartments, though they may not have the superior glamour of urban complexes, have what it takes to be good investments in the coming years. As young Americans look to rent more and more, it seems reasonable to assume that they will direct their attention to the affordable option of suburban apartments. This is likely to apply doubly to those whose pocketbooks are weighed down by regular student loan payments.
No matter how confident you may be in your investment ability, it is always wise to work with a capable firm to maximize your investment experience.
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