Successful apartment property targeting needs to define two key dimensions:
– The type(s) and quality of the apartment units that will be included in the project
– The best locations in the targeted market for investing in the selected types/qualities of apartments
Choosing the most profitable apartment property type to invest in the targeted metropolitan area or city requires thorough analysis of the local apartment market and identification of apartment types and qualities for which there is strong demand and supply shortage. Strong demand is measured as high absorption rate at the time of analysis for a particular apartment type and quality, but this is not enough, it has to be supported by strong growth rates of the household types that demand such apartment units.
For example, if we identify high absorption rates for high-quality 1 and 2-bedroom apartments we need to verify that such high absorption rates will continue in the years ahead by examining the expected growth rates in the number of high-income singles and young households without children, which represent the most likely segments of the population that will demand such apartments.
Of course, in choosing the most profitable apartment property type we need to look also at the available supply of similar empty apartments that will compete with our investment and ensure that demand will be outpacing supply in the years ahead. Even if we predict strong demand for an apartment type, if there is excess supply in the market it will be a very risky investment due to the high likelihood of rent and price declines in the years ahead.
Apartment property targeting in terms of location, can focus on the best neighborhoods of the city with successful apartment buildings of the same type of apartment units as the selected type for the investment. The location focus of apartment property targeting should be on developing neighborhoods or neighborhoods that have been recently fully developed since such neighborhoods have greater income and value appreciation potential in the years ahead.