Someone inquired about what kind of renovations we do and what kind of product we seek to create.
Essentially, asking where we sit in the stack of apartment classes- which prompted an explanation of them.
Apartment complexes are generally categorized from Class C to luxury and vary widely in quality, amenities, and target demographics.
Class C Apartments: Budget-Friendly
Class C apartments are the most affordable option, typically older and located in less desirable neighborhoods. No frills, just a place to live.
Appeal: Class C apartments attract budget-conscious renters like students, working-class individuals, and those with lower incomes that typically leverage municipal housing vouchers (section 8). Very intensive property management processes are required as these assets typically have the most issues.
Class B Apartments: Middle Tier
Class B apartments offer a middle ground, being newer and in better neighborhoods than Class C. Typically nicer finishes and (some) amenities.
Appeal: Class B apartments cater to work-force housing in addition to young professionals, and small families. Higher credit tenant base than Class C and with generally less headaches.
Class A Apartments: Modern Living
Class A apartments are newer, located in desirable neighborhoods, and feature high-end finishes/materials.
Appeal: Class A apartments attract higher-income individuals, from older couples to high earning young professionals. These renters are willing to pay a premium for proximity to work, dining, and entertainment. Typically, responsible tenants, resulting in less management issues.
Luxury Apartments: The Peak
The top tier of the market, offering opulent finishes, expansive floor plans, and cutting-edge amenities, usually in the most desirable locations.
Appeal: Cater to the wealthiest renters who seek privacy, security, and access to the best parts of the surrounding area.
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The apartment market is diverse and each class serves a specific demographic and presents their own risks/rewards.
We choose to focus on the Class A space for the following reasons:
-Higher Credit Tenant Base- implying more stability in rent collections.
-Premiums on Rents - these assets command higher rent rolls due to their location, and newer construction/renovations, leading to greater rental income.
-Demand - high earning professionals want to live in nice apartments in nice areas- there are only so many of these in our target areas and it’s very hard to add more.
-Maintenance and Upkeep - newly renovated properties require less immediate maintenance and fewer capital expenditures compared to older Class B or C properties.
-The Dirt - desirable locations tend to appreciate at faster rates than others. If it’s hard to add new inventory into an area that people will continue to seek out, signs point to growth over time.