3 Reasons to Invest in Class B Assets
Jay Eisner of LEM Capital details the value proposition of upgrading properties to improve the resident experience without inflating rents.
Multifamily properties have been a great investment opportunity as rental demand continue to rise, but as the majority of all new supply coming to the market is Class A luxury-style housing, many investors have turned to Class B assets.
According to the U.S. Census Bureau, more than 43 million residents rent, and as more people migrate toward renting, investors are increasingly deploying capital into Class B assets, with the goal of enhancing them to a Class A standard, without the luxury price tage. Jay Eisner, a partner and co-founder of LEM Capital, listed three reasons why Class B assets are a lucrative investment opportunity.
Class B multifamily properties have shown themselves to be recession-proof, whereas their Class A counterparts can be riskier, due to rental rates that are typically 20 percent higher than Class B and amenity-related expenses.
Class B multifamily properties are attracting a wider demographic, from Millennials who are strapped with student loan debt and looking for more affordable living spaces, to Baby Boomers on fixed incomes wanting to downsize. The U.S. Census Bureau reports that the median price of a new single-family home in August 2017 was $313,000.
As a result, home ownership is out of reach for many. Due to increasing costs of labor and construction over the past decade, there has been undersupply of both single-family and multifamily homes, especially at the entry level and more affordable price points. The need for affordable housing will continue to grow, driving a supply-demand imbalance among Class B multifamily housing.
Value-add improvements, such as painting and installing new appliances and kitchen counters, are the most cost-effective way to make Class B multifamily properties more attractive to renters. Sought-after amenities, such as Amazon package lockers, pet-friendly features and on-site dry-cleaning services, all serve to make residents’ lives more convenient, without burdening property owners with high implementation costs.
Image courtesy of LEM Capital