Why Class-B Multifamily Properties Are A Good Investment

Investing in multifamily real estate has always been a smart real estate investment.  Right now, in the Phoenix Metro Area real estate market, rental demand has had steady growth and is predicted to continue to grow as more and more people move to Arizona.  Most new supply of multifamily properties that are being developed is Class A Multifamily, however, Class B Multifamily real estate has proven itself to be a more popular choice among real estate investors for a number of reasons.

Recession Proof

Luxury style apartments do yield a higher return on investment; however, these Class A Multifamily properties are also riskier to take on then their Class B counterparts.  Class B apartments do not have the same maintenance costs as a luxury apartment will have.  With Luxury apartments, you will be looking at the cost of providing several amenities to your tenants such as a fitness center or providing internet access throughout the complex. 

So, what makes class B multifamily more recession-proof than class A? It comes down to is that the vacancy rate for Class B multifamily will be much lower than that of Class A, which is 20% or more expensive to lease.  This means that if another recession like the one back in 2008 and 2009 were to hit again, people will be opting for the more cost-effective choice of class B over class A, making it a safer real estate investment.

Market Shift   

People who are looking to move into apartments tend to fall into two categories.  On one end, you have millennials that have student debt preventing them from being able to purchase a home, and who likely want to save in order to pay off the previously mentioned debt.  On the other end, there are the baby boomers who might be on fixed incomes seeking to downsize into a more manageable place to live in and maintain.  These two groups can’t spring for the luxury apartments, but class B multifamily properties make a great and affordable housing option for them.

Easy to Add Value for ROI

Improving a Class A Multifamily property doesn’t have many cost-effective options, while Class B Multifamily has a number of ways to improve the property to help attract renters.  With a class B apartment building renovating the kitchen to have new countertops and appliances can draw a lot of interest while keeping costs down.  Other small items that can be improved on throughout the time you own your multifamily property is putting in new flooring (especially if it doesn’t scuff or age poorly) or putting in a fresh coat of paint.

Some larger items that can help attract renters, that will also add value, include pet-friendly amenities like doggie bags available throughout the complex or a dog park, Amazon package lockers, so that tenants won’t have to wait for the front office to be open to retrieve their packages.  Another improvement to consider investing in, if it isn’t already put in, is individually metering the units.  This will keep your costs down by putting utility service costs on to the borrower, or by giving you the choice to average out the cost of utilities for your tenants.

Capital Fund 1, LLC has financed apartment acquisition and rehab loans across Arizona and is ready to help you finance yours.  Call us today to get a loan quote!