Real estate investors are tasked with underwriting investment opportunities of all vintages. This requires knowledge of how apartment building designs have changed over time, which eras are preferred by renters, and what ongoing maintenance costs will look like.
Newer properties tend to be the easiest to rent and cost less to maintain, but they have a tradeoff: The higher prices that newer properties fetch often translate into lower returns. On the opposite end, older assets can be more difficult to attract renters and more expensive to maintain, but they are often priced to offer higher returns.
A building from any of these eras could be a good investment, it all depends on the entry price. That entry price needs to take into consideration any mechanical updates required, deferred maintenance needed, and the expected annual running costs of the property.
At Ridgeview Property Group, we’ve got a few non-negotiables regarding older properties: We feel that owning a building with clay sewer pipes, knob-and-tube wiring, galvanized water lines, or fuses is not a sound business decision. When pricing out an older property, we’ll take into account the immediate replacement of these elements as part of the acquisition plan.
Assuming these components have been upgraded, a building from any of the following eras could potentially turn out to be a successful investment. Let's dive into the different eras of apartment building construction, and what investors should look for.
Early 20th Century (1900s-1920s)
Urban Elegance. During this period, apartment buildings were typically constructed in urban areas to accommodate the growing population in cities. Buildings were characterized by features such as grand entrances, ornate facades, and spacious units with high ceilings.
Investor Perspective
These buildings tend to be built well and tenants love them. They do however carry the issues of aging properties: expensive exterior upkeep, old heating systems, old wiring, fuse panels, aging sewer pipes, and galvanized water lines. When adequately renovated and upgraded, these apartments are easy to rent. Many times they have spacious units, custom built-ins, and unmatched historical charm.
Interwar Period (1920s-1940s)
The Rise of Garden Apartments. During the interwar period, the concept of the "garden apartment" emerged, characterized by landscaped courtyards, communal gardens, and setbacks from the street. The units in these buildings were often more compact than those in earlier eras, reflecting shifting preferences and economic conditions.
Investor perspective
Operating these buildings involves similar challenges to those of early 19th-century buildings, but they lack some of the historic charm. Like the previous category, be vigilant for issues such as old heating systems, outdated wiring, fuse panels, aging sewer pipes, and galvanized water lines.
Post-World War II (1940s-1960s)
The Boom of Modern Complexes. The post-war period witnessed a boom in apartment construction to meet the housing needs of returning veterans and a growing population. This era saw the emergence of large-scale apartment complexes and the introduction of modern building materials such as concrete and steel.
Investor Perspective
From an investor perspective, these buildings tend to be low-frills, but easier to maintain than earlier builds. Watch out for small floorplans with compact, enclosed kitchens and cramped bedrooms. You can renovate an apartment to the 10s, but if it has a bad floor plan or undersized unit sizes, the rent potential is capped. Fuses were frequently used during this era and would need to be upgraded to circuit breakers.
Late 20th Century (1970s-1990s)
Suburban Shift and Functional Designs. During this period, there was a shift towards suburban apartment living, with the construction of sprawling complexes in suburban areas. Architectural styles were diverse, but there was a greater emphasis on functionality and cost-effectiveness, leading to the rise of utilitarian designs. Amenities such as fitness centers, laundry facilities, and recreational areas became standard features in many apartment buildings.
Investor perspective
Our “Goldilocks” zone for real estate investing. Buying and renovating late 19th-century buildings offers better yields than buying newer buildings, and maintenance isn’t as intensive as older properties. These buildings perform very well when the apartments are renovated to modern finishes. Watch out for Stab-Lok breakers, which need to be replaced due to a defective design.
Contemporary Era (2000s-Present)
Modern Amenities and Varied Designs. Apartment buildings today often feature modern amenities such as forced air heating and cooling, workout facilities, underground parking, and community spaces to appeal to millennial and Gen Z renters. Better insulation, higher R-rated windows, and modern heating and cooling lead to energy-efficient buildings. Architectural styles vary widely, combining contemporary designs, adaptive reuse projects, and nods to historic preservation.
Investor perspective
Modern buildings are easier to rent and require less maintenance. They also operate with a lower expense ratio compared to older vintages. With minimal upgrades needed, investors do not need to include an extensive construction budget as part of their acquisition plan. These benefits lead to much higher per-unit prices, more competition amongst buyers, and thin returns.
A Competitive Edge
Being in the know about construction trends isn't just beneficial; it's a competitive advantage. Our knowledge of building construction informs our pricing strategy and allows us to anticipate challenges before they arise. We favor buying properties built between 1970 through the 1990’s due to their combination of high return potential, relatively modern mechanicals, and apartment layouts that respond well to renovations.
Market News
Top 10 Markets for Rent Collections
Rental housing economist Jay Parsons recently took to Twitter to discuss the varied factors influencing the frequency of rent payments among apartment renters in various U.S. markets. According to his findings, Minneapolis is ranked among the top ten markets for rent collections with a rent collection rate of 97%. The tweet challenges assumptions about rent declines solely being driven by supply issues and highlights the complexity of rental trends across different regions.
Source: Parsons, J. @Jayparson. (2024, March 1). "Where are apartment renters paying rent at the highest frequency, and where are they not?."https://twitter.com/jayparsons/status/1763217177258402275
Tips & Tricks
Terms:
Deferred Maintenance– Deferred maintenance refers to the postponement of necessary repairs, renovations, or maintenance tasks on a property. It occurs when property owners or managers delay addressing needed upkeep, often due to financial constraints or other reasons. As a result, routine maintenance and necessary repairs are put off, leading to a potential accumulation of issues that may impact the property's overall condition and value over time. Addressing deferred maintenance is crucial in maintaining the long-term health and value of multifamily properties.