In this advice article, Mike Liverton, founder and chairman of Jetstream Hospitality Solutions, outlines some top tips for investing in apartments profitably.
Investing in apartment buildings is a tricky business, traditionally requiring high levels of industry knowhow in order to ensure optimal ROI. So it’s no wonder that investors with limited real estate expertise have steered clear of the lucrative short-term rental market - put off by resource intensive operational obstacles and property management tasks, not to mention the financial risk.
A different real estate landscape
The real estate space is evolving, largely in response to the increasing demand for flexible living and working space: 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.
As a result, innovative business models, supported by tech solutions, are emerging to enable investors and property owners and managers to operate efficiently and effectively in this booming marketplace. PropTech platforms, such as Jetstream Hospitality Solutions, allow investors to access the short-let market by streamlining operations and increasing ROI through a shared success model.
Partnering with a tech-enabled, professional hospitality solutions provider is a great way of operating more efficiently and cost effectively. Property owners and managers are turning to all-in-one tech platforms with full turn-key solutions to handle essential processes such as channel marketing, distribution and guest communications. Not only does this reduce the workload and risk for asset owners and managers, it also takes the hassle out of property technology integrations.
Companies such as Mint House, Sonder and Kasa are among the top names standing out in this sector due to their aptitude for leveraging tech solutions to offer guests the flexibility they demand at a competitive price, while still maintaining the high level, hotel standard service and amenities they’ve come to expect.
The benefits of apartment investing
Thanks to these new business models and tech solutions, the appeal of apartment investing and the commercial opportunity for solid growth and a higher ROI is becoming increasingly apparent. The rigid long-term leasing agreements of old have been replaced with more flexible leasing options - with benefits for both investors enjoying financial reward and residents taking advantage of the opportunity to now work from anywhere and wanting to sublet their apartments and earn additional income as a result.
On top of this, apartment investing brings the obvious benefit of a recurring rental stream from each unit.
A further benefit is that by growing your apartment portfolio, your investment is spread across multiple assets, which means less exposure and risk for you when a single unit is vacated (or vacant).
Choose your apartments wisely, and you can start to build a portfolio that will appreciate over time. This leverage is an important step to securing future investment opportunities.
Five top tips for apartment investing
Location, location, location: It may sound obvious, but when it comes to property investment of any kind, location is of utmost importance. Take time to consider the type of tenant you’re looking for and how the location will work for them. What does your tenant persona look like? What are their accommodation and lifestyle wants and needs? Think about proximity to transport links, shops, restaurants, co-working spaces and other local amenities.
Choose the right building: Location decided, now make sure the building is right for your investment. Start with the condition of the building. Minor renovations can be dealt with by property maintenance teams so don’t dwell on cosmetic issues, but seek professional advice on the overall structural condition of the building. This will allow you to factor outlay costs into your financial investment planning.
Future-proof your investment: Not only must the building be structurally sound and fit for purpose, it must also work in line with your real estate strategy. Safeguard your investment by looking for buildings that allow for full flex rentals - both short-term and longer-term zoning. Even if this is not your immediate focus, make sure planning/ building use permissions are in place for future needs.
Do your homework: Firstly, it’s important to understand the property tax implications of your investment. Always seek professional advice on this. Property tax is one of the biggest investment expenses so do your research upfront to avoid nasty surprises later down the road. Secondly, take time to fully analyse the profitability of your real estate investment. This means getting a realistic idea of the NOI (net operating income) of the apartment or building - so all revenue you can expect, minus operating expenses. The shift towards flexible, shared-success leasing options, as well as enabling tech solutions in the sector, is boosting profitability and consequently attracting new investors to the market. Jetstream Hospitality Solutions offers investors a Forecasted Revenue Analysis to help them gauge potential returns on their target investment.
Take advantage of the tech: Apartment building property management is no mean feat. With more units to manage, it can be time consuming and costly. This is where tech-enabled property management steps in. Smart home solutions take the hassle out of property management through smart automation and connected devices. This drives efficiencies for you, ultimately improving your bottom line.
Investors are watching the lucrative apartment real estate space with interest - keen to capitalise on the high revenue/low risk opportunity it now presents. With the right approach and business model, adding apartments to your real estate portfolio can be a great strategic investment.
*Mike Liverton is the founder and chairman of Jetstream Technology Solutions, an all-in-one platform that provides a powerful way for owners, managers and aggregators of multi-unit, short-term rental properties to operate more efficiently and cost-effectively.