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Investing in an urban apartment complex could be a good first step for a young investor. Doing this through a 1031 exchange allows you to defer capital gains tax, and the investment can provide cash flow along with long-term growth in asset value.

 

Making the Case for Investing in Urban Apartment Real Estate: The Benefits of City Living

May 01, 2017

After a good game of tennis, a friend and I got to talking about finances, specifically, investments. He had recently inherited an investment property from his uncle—a large vacation home and acreage in rural Texas.

Despite some financial knowledge, my friend is young, doesn’t have a ton of experience when it comes to making investments, and has zero experience in real estate investment. So, he asked me for advice: Should he keep the real estate investment his uncle passed on to him, or sell and reinvest that money in a different type of product?

My friend’s dilemma is not at all uncommon. Many young investors want to capitalize on early financial success or an inheritance, but don’t have enough concrete experience to know which investments are best. This relative lack of experience is one reason why working with a competent firm can be particularly beneficial for younger investors.

During our conversation, I threw out the idea that my friend could sell his uncle’s property and invest in an urban apartment complex instead. Doing this through a 1031 exchange would allow him to complete this type of transaction and defer any capital gains tax liability because he’d be exchanging one investment property for another of equal or greater value. This type of investment could also provide cash flow along with long-term growth in asset value, making it a good first step for a young investor.

Dwellers Have Increased Access to Employment Opportunities

One of the main reasons why urban apartments are a good investment option is that urban settings typically offer more—and in many cases, better—employment opportunities. This is one of the largest appeals of urban apartment living. Urban environments tend to have more businesses, people, networking opportunities, and money.

As long as urban settings have attractive employment opportunities, they will continue to attract high numbers of young, ambitious, and educated people. Many of today’s millennials flock to apartment complexes, which allow them to consume the benefits of urban living without having to worry about the hassles of homeownership. Also, the flexibility of not being tied down to homeownership allows many residents the ability to move wherever job opportunities may take them. These complexes are, therefore, not likely to be without residents, which means that occupancy should continue to remain strong.

Urban Amenities Drive Migration

Along with attractive job prospects, urban settings offer a wider array of amenities compared to suburban or rural locations. Just from their design, urban environments offer a broader assortment of restaurants, nightlife, museums, cinemas, and other sources of entertainment in a pedestrian-friendly way. These perks are a big reason why many people choose to live in urban environments rather than live remotely and commute to work.

There is evidence to support the idea that the lifestyle offered by urban centers is something that attracts people away from other areas. This means that, for as long as urban areas continue to provide a greater suite of amenities, there’s a higher probability that the in-migration of today’s generation will be willing to pay higher rent premiums for these urban locations.

In other words, given the amenities of urban life, it’s safe to say that urban apartment complexes have a natural competitive advantage over other living environments. Urban dwellers aren’t simply paying for square footage, they are paying for a lifestyle they are unable to acquire elsewhere. There’s no indication that the lifestyle of urban centers is declining in popularity. Among younger people, the appeal of urban life will probably always be strong. Though urban life does have tradeoffs, current migration trends suggest that many Americans desire this lifestyle.

Young People Are Migrating to Urban Settings

Though the image of the “house with a white picket fence in the suburbs” continues to shape the American psyche, there is substantial evidence that shows that people—especially younger people—are slowly stepping away from this ideal. Among the millennial generation, it appears that the new norm is to move away from the suburbs and live in an urban environment where there are more opportunities to be social.

In part, this norm is being driven by the increased rates of college attendance. As more young Americans attend and graduate from institutions of higher learning, they are heading to areas with better job prospects and more cultural activities. It is also being driven by economic necessity. Fewer and fewer millennials have the resources to purchase a traditional single family home, and as a consequence, they are choosing to rent apartments in multifamily complexes.

It’s clear that urban centers, such as Austin, Dallas, Atlanta, and Raleigh, are growing at rates that exceed the typical rate for the country as a whole. Given the many perks of urban living, this trend is likely to persist well into the future.

For young investors who are looking to break into the world of investing, multifamily apartments may be the ideal opportunity. While we have provided a case for investing in urban apartments, there are also very compelling reasons for investing in suburban apartments. Regardless of which you prefer, what matters is ensuring you choose the right property and that your transaction goes smoothly (link to contingency clause post). That’s where partnering with a reputable, experienced firm, like CWS Capital Partners, is beneficial. Contact us today to discuss your real estate investment strategy.

 

The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.


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