Investing in apartment complexes has long been a potentially lucrative endeavor. Many people can't afford to buy or rent stand-alone homes, reverting to apartment living until their finances change.
When we think about apartment living, it's easy to imagine investing in a city building or series of buildings. After all, city dwellers are more likely than suburbanites to want apartments, with many of the latter flocking to rural areas in search of a freestanding home with a yard.
But thanks to the coronavirus pandemic, a lot of people -- young ones in particular -- are looking to escape city life, heading to the suburbs instead. And those without the means to buy or rent a stand-alone home will need a place to live. That presents a key opportunity for real estate investors, who can buy apartment complexes in suburban areas and welcome former city dwellers with open arms.
It pays to focus on the suburbs right now
A good 37% of millennials are thinking of leaving cities within the next year, according to an August Quicken survey, and 16% think they'll head to the suburbs within the next six months.
For many, that decision was fueled by the COVID-19 crisis. Since it could be a solid year or more until life gets back to normal, many city dwellers would rather move to a less-populated area -- where the supermarkets have wider aisles that allow for safer shopping and there are spaces to park a car so there's no need to cram onto public buses or trains.
Also, some city dwellers may be tired of being cooped up in small apartments without access to outdoor space, so they might seek out suburban apartments. These are apt to offer a lot more square footage at a similar price point, as well as possibly more outdoor amenities like balconies, decks, patios, or even small backyards, in the case of garden apartments.
All of this could make for a very rewarding opportunity for landlords. Those with capital to invest in suburban complexes could spend the next few months putting a modest amount of work into bringing them up to date and then offer them to tenants used to city prices, who may therefore be amenable to spending more on rent.
That said, some city transplants may not have access to a car right away, or at all, when they move to the suburbs, so investors may want to focus on apartment complexes within walking distance to key amenities like supermarkets, pharmacies, and even cafes and restaurants (once the pandemic is over, the idea of having eateries nearby will quickly become a major draw).
Investors will still do well renting out stand-alone homes in the suburbs. But a lot of people leaving cities won't want or need those homes. Single folks, for example, may be loath to pay for 1,800 square feet, three bedrooms, and two bathrooms just for themselves. So suburban apartment complexes could be a really solid bet, especially in the near term.