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Investing in Apartments: 3 Reasons Why Now Is a Great Time

Everywhere one looks today there are growing signs that investing in apartments is a smart idea now and will be for the next several years.

The part of the American Dream that includes a white picket fence and your very own home is fading for many. In the second quarter of 2010, only 66.7% of households owned their own home. That’s the lowest number recorded since the last quarter of 1999. Many of those former homeowners are now renting their homes, and some have gone back to apartments.

In fact, when a Trulia survey recently asked, “Is home ownership a part of your American Dream?”, only 72% responded, “Yes”, compared to 77% just six months earlier.

In a May 2010 survey of overĀ  2,000 U.S. adults, the National Apartment Association found that 76% of the respondents now believe that renting is a better option than owning. This is up from 71% in 2008. Half of the people cited financial reasons, while a full 64% enjoy having no maintenance responsibilities.

In addition to the positive signs from these surveys of American’s attitudes, current apartment owners are reporting improving conditions. The National Multi Housing Council performs a quarterly Survey of Apartment Market Conditions. One section measures “market tightness.” A Market Tightness Index reading above 50 indicates that, on balance, apartment markets around the country are getting tighter; a reading below 50 indicates that market conditions are getting looser; and a reading of 50 indicates that market conditions are unchanged. The July 2010 index stood at 83, up from 38 in January and 11 recorded in January 2009. This is a clear trend showing fewer vacancies in existing apartments.

SAN FRANCISCO - JULY 08:  A sign advertising a...
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Greg Willett, VP of MPF Research claims that, “Demand is stunningly high in the first half of 2010.” The number of occupied units increased by 215,000 in the 64 largest U.S. markets through June. That’s almost twice as many as in all of 2009. The overall vacancy rate in the same markets declined to 6.6% from 8.2% in December. Closer to home, the Colorado Springs vacancy rate dropped to 5.8% in the second quarter, the lowest rate recorded since the 5.4% reported for the third quarter of 2001.

The third main reason smart money is moving into apartment investing is the tsunami of new renters coming of age in the next few years. These “echo boomers”, children of the original baby boomers, are now in their 20s and 30s, typically prime renting years.

The Baron’s cover story of July 26, 2010, entitled Renter Nation, claims that, “Roughly 10 million extra folks could be moving into rentals in the next five years.” In addition, the National Association of Home Builders chief economist believes the 83 million echo boomers entering the market over the next decade is a positive demographic trend for the apartment market.

Since improving apartment market conditions usually follow job growth, experts are speculating as to why this improvement is happening without it. Maybe the economy has stabilized to the point that young workers have enough confidence in their current job to move out of home or split up from their roommate, but not enough to put a down payment on a home (if that’s even a goal).

So, because of changing American attitudes about home ownership, decreasing vacancy rates, and the demographic bubble approaching, it’s looking like a great time to be investing in apartments.

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Colorado Springs Has Third Highest Apartment Turnover Rate in Country

According to a recent survey conducted by the National Apartment Association, the apartment resident turnover rate is 74% in Colorado Springs, tying it for third place with Charleston, SC. In contrast, the metro area with the lowest rate is San Jose-Sunnyvale-Santa Clara, CA, with just 9% turnover. No other Colorado city made either the top or bottom 10 lists.

Garden apartments in Jackson Heights
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While dealing with a prolonged recession, declining rents, tax increases, and a rising cost of living, the apartment industry is placing greater emphasis on operations and management skills. One of the biggest factors in successful communities is the quality of the onsite personnel, who serve both the residents and the owners. They are dealing with declining NOIs and increasing expenses while dealing with a very competitive marketplace. They also have to be aware of the economic losses, which combine vacancies, net uncollected rent, and the value of rent concessions. Not an easy time to be an asset manager!

Here is where you can read the entire executive summary of this survey.

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