By Mike Liverton, founder and Chairman of Jetstream Hospitality Solutions
The property landscape is shifting right now. Demand for a more flexible way of living and working as a result of the pandemic is increasing, meaning that apartment buildings have once again become a wise investment choice. However, putting your money into multiple units has long been a challenging strategy and one which property novices have rightly approached with caution.
Obstacles such as complex operations, high financial risk, difficult tenants and limited property market expertise can deter first timers from investing in apartment buildings. But two industry changes are now making the path into this sector much easier to access and make profitable:
Flexible renters want flexible accommodation
Research carried out recently by short-term rental booking platform, Leavetown.com, showed that 81% of respondents think they will continue to work remotely post pandemic at least part of the time, with 45% agreeing that they will continue to work remotely most of the time. Demand for more flexible renting options is growing as renters want to travel for work and leisure and rent out their apartments in the meantime. This can be mutually beneficial to both investors and flexible renters.
Innovative tech solutions
New business models, supported by tech solutions, are emerging to enable investors, property owners and managers to operate efficiently and effectively in this booming marketplace. Proptech platforms allow investors to access the short-let market by streamlining operations and increasing ROI through a shared success model. Investors no longer need to go it alone and juggle all the complicated facets of apartment investment and management, they can leverage the support of all-in-one platforms.
Property owners and managers are increasingly using tech platforms with full turn-key solutions to handle all the essential processes such as channel marketing, distribution and guest communications. The tech does the heavy lifting in terms of distribution and operational tasks reducing the investment risk for owners through shared success models.
Why choose apartment investing?
As a result of the two changes above, the attraction of apartment investing and the commercial opportunity for growth and a higher ROI is clear. Long-term leasing agreements can be replaced with more flexible leasing options meaning that investors can benefit financially whilst flexible renters could also sublet their contracted apartments (perhaps whilst working remotely), earning additional income as a result.
One of the main benefits of this type of property investment is a more diverse recurring rental stream from each unit with less exposure because of the breadth and diversity of your portfolio.
Another, often overlooked, advantage of building a property investment portfolio in this way is that it should appreciate over time, if you pick the right apartments / buildings. The knock-on effect of this is all positive for investors when they look to secure further opportunities or lending.
Here are my 6 practical top tips on how to make your apartment investment strategy profitable:
6 Top tips:
- Know your market: investment rule number one – understand your market. What locations are experiencing a higher demand for rental properties? What makes a location desirable for short-term renters? No two areas are the same and it’s important to do your research and understand which places are on the way up. Just because a building is cheap does not make it a good investment, there could be many geographical, social or economic factors which are influencing price (positively and negatively). Do your due diligence.
- Know your tenant: once you’ve decided on a location, consider the type of tenant you’re looking for and how the area will work for them. Who is your ideal renter – young professionals, families, digital nomads, seniors? What are their accommodation and lifestyle wants and needs? Think about proximity to transport links, co-working spaces and local amenities such as shops, sports facilities, trendy cafes.
- Check the structure: don’t overlook the building itself – make sure you check the condition of the apartment block. Is it structurally sound? Are the main elements in good working order – lifts, roof, communal areas? Cosmetic issues can easily be fixed by maintenance teams however you should always seek professional advice on structural issues before investing. Any problems uncovered can be factored in when you draw up your financial plans helping you to decide if it’s a profitable investment.
- Safeguard your investment: look for buildings that allow full flex rentals – both short-term and longer-term zoning. Make sure planning/ building use permissions are in place for future needs. This will enable you to capitalise on the flexible living and working trend discussed earlier. By flexing your apartments you can increase your ROI as an investor as well as satisfying tenants with flexible accommodation options.
- Harness the tech: managing apartment buildings is a complex business – they are operationally difficult, time consuming and often costly. Property owners and managers are increasingly turning to smart tech solutions to automate, simplify and streamline their operations. I’d recommend getting up to speed with tech-enabled property management solutions, to take the sting out of operational challenges. With smart automation and connected devices, these days it’s much simpler to lean on tech to improve your bottom line as an investor. Even more so now that many of these tech solutions integrate with one another.
- Do the maths: property tax is one of the biggest investment expenses so do your research in advance so you know what to expect when purchasing. Always take professional advice on this and don’t cut corners. It’s important to understand the property tax implications of your investment. As an investor, you should always analyse the profitability of your potential purchase – do the numbers add up? Do your homework and be realistic about the NOI (net operating income) of the apartment or building. What is your expected revenue minus your operating expenses?
Flexible, shared-success leasing options, as well as enabling tech solutions in the sector, are boosting potential profitability in apartment investing. New investors are entering the market at the moment keen to capitalise on the high revenue/ low risk opportunity it now presents.
Building a property investment portfolio based on multiple units will continue to be a smart way to invest your money, leverage finance in the future and benefit from a continuous revenue stream – as long as you know your market and do your homework before buying.
