Apartment Investors: Hold or Sell
With the housing market cooling, apartment vacancies are expected to decrease to 5.3% nationally this year. Rent growth is also at its strongest since 2000 at 5.5%. Over the past two years, apartment investors have experienced total returns of about 20% a year from income and unusually high price appreciation — up from the 12% annual average return found in the previous 10 years. So why has there been an increase in apartment investors selling their holdings?
A few reasons have been cited. First, many who have held their investments have enjoyed high price appreciations, but that also has translated into a larger tax liability which they no longer wish to carry. Secondly, many investors are Baby Boomers who are tired of dealing with the hassles of repairs, apartment turnover, and tenant issues. They are seeking less-intensive investments. Finally, many investors are seeking stable, long-term cash flow and not necessarily as much equity buildup. For many, investing in apartments no longer fits with their financial long-term investment goals.
This doesn’t mean that these investors are leaving real estate behind. Many are simply redeploying their equity into single-tenant, net-lease properties, such as warehouses, retail properties or office buildings occupied by only one tenant that is responsible for expenses, including taxes, insurance, maintenance and almost everything else. Little or no management responsibility and a stable, long-term cash flow are appealing to these former apartment-investors.