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To identify suburban multifamily properties with potential for steady income and future growth, multifamily property investors need to know exactly how to determine what makes a good suburban investment and where the best investment areas are.

 

Why the Suburbs are Good Property Investment Areas

Jul 10, 2018

In the United States, the suburbs have historically shown consistent growth, but suburban multifamily property markets do gain and lose popularity over time. The suburbs are fed by two demographic groups: those who prefer the suburban lifestyle and those who are priced out of a city center. Currently, the center of market activity in many areas of the U.S. is shifting from cities to suburbs, as are population flows. So, long-ignored towns on the fringes of metro centers are seeing a lot of new development. Multifamily building construction is on the rise in the suburbs of Charlotte, for example, and the suburban multifamily market in Seattle’s eastern suburbs will likely remain very healthy for the next few years.

In order to capitalize on this transitional trend, multifamily property investors need to know exactly how to determine what makes a good suburban investment and where the investment areas are as they make investment decisions.

What to Look For in Good Suburban Property Investment Areas

To identify suburban multifamily properties with potential for steady income and future growth, investors must consider the following:

  • Rental Yield. Rental yield measures the return on your property investment and allows you to compare your property to others that are similar. Some suburbs have higher rental yields than others, depending on location and availability. It all comes back to basic economics—supply and demand. For example, a small suburb close to a metro area might have a higher rental yield than a larger suburb that is slightly less accessible to the city. Even just a few percentage points could mean the difference between success and failure.
  • School Ratings. Renters make life decisions based on family needs, especially with regard to children. This is not isolated behavior. The majority of Americans factor family needs into their decision before moving into a new home or apartment.[1] While the suburbs often have higher tax rates, a portion of taxes is used to fund area schools. In general, schools in the suburbs offer less-crowded classrooms and use larger budgets to hire more teachers. As a result, children are often provided with better learning experiences.[2] So, property investors must conduct the same research as renters with families: review local schools to discover how they stack up against one another in relation to funding, test scores, and even sports and extra-curricular programs.
  • Amenities. Young professionals between the ages of 25 and 29 are 25 percent more likely to relocate from the city to the suburbs than move within the city, while older millennials are 50 percent more likely to do the same.[3] While amenities are very important to all residents of multifamily properties, members of the millennial generation are especially keen on amenities that focus on work/life balance and that support their health. On-property wellness centers, for example, are very popular with this age group.  As you look for good suburban property investment areas, especially when repositioning, consider the commute and the public transportation options that would attract millennials—and others—to your property. 
  • Economy and Job Market. A suburb with a rising economy and a low unemployment rate is ideal for property investment. An improving economy means investors could face less competition, while low unemployment indicates residents with steady incomes who can afford markets rents, and suggests low crime rates.
  • Local Laws. Researching local laws and common practices is a must for all multifamily property investors, especially those considering new development in the suburbs. New construction in a small town doesn’t necessarily mean an easier planning process. You’ll want to meet with city council members and planning and zoning committee members to discuss timelines (city permit approvals can take months).
  • Property Taxes. Typically, property taxes are higher in the suburbs than in the city. However, when you factor state, local, and income taxes into the overall tax equation, you might be able to make up the difference.[4] Plus, if the market warrants, you can increase current rental rates. Remember, too, that multifamily real estate is becoming a more attractive investment due to the 2018 tax changes that impact single-family home ownership. Included in the changes is a reduction of state and local income tax and property tax deductions, which may encourage high-income homeowners in the most affected states (California, New Jersey, New York, and Connecticut) to move out of state or consider renting. 

Examples of Good Property Investment Areas

There is no exact science in determining which suburban area will experience the next population boom, but if you look at some of the larger metro areas in the United States, you’ll see great examples of surrounding suburbs that continue to be good property investment areas. Many of these areas offer wonderful opportunities to profit from repositioning, too. As people migrate to the suburbs from luxury city residences, they crave the polish and sophistication they’ve grown accustomed to. Let’s take a look at a two locations CWS believes are great investment areas.

Denver, Colorado

Population growth in Denver continues to outpace the rest of the country. In fact, growth is twice the national rate. Like any major city, Denver offers restaurants, entertainment venues, hiking and running trails, and more as attractions. Today, commuting to downtown is easier than ever thanks to a sprawling rail line that connects downtown Denver to the suburbs and airport.[5]  This makes taking advantage of all the city’s offerings easier for people who want to live in the suburbs but don’t want to contend with the daily trappings of city life. Over 15,000 apartment units—the third-largest number of new apartments in the country—are on track to be completed this year in Denver, which is an increase of 6.4 percent over 2017.

Charlotte, North Carolina

In February of this year, Forbes ranked Charlotte among the top 20 fastest-growing American cities. The city’s population grew by 2.04 percent in 2017 and is on track to grow 2.07 percent in 2018.[6] According to new data from the U.S. Census Bureau, the small town of Fort Mill in the Charlotte suburbs is gaining in popularity due in part to low property taxes and a top school system.[7] The Charlotte metro area is home to six Fortune 500 company headquarters, including Bank of America, Lowes, and Duke Energy.[8] This all bodes well for multifamily property investors seeking to branch out in the southeast.

Now that you know what to look for and where to start looking, you can begin to identify good property investment areas in growing U.S. suburbs. As you narrow your search and get close to making a final decision, consider working with an experienced real estate investment management company that can help you with managerial tasks and screen residents, and more.

At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and multifamily real estate valuation to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.

For more articles like this one, check out our investment strategy blog posts.

Contact us today to get started with your next investment.

 

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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