Is single family for rent a direct competitor to apartment buildings?
At first this feels like a no brainer but I'm getting a little concerned with a piece of property that I'm planning on putting about 350 units of apartments on is surrounded by SF4R. Does anyone have any experience on comparing the two? Is it basically the same demographic that these two product types are after?
[{"id": "gyyv79l", "text": "I believe they are two types of demographics.  People who want an apartment don't want the responsibility of maintenance, lawn care, and prefer cheaper rent. Think, young families, elderly, busy mid range professionals or work from home.", "replies": [], "depth": 1}, {"id": "gyywn0o", "text": "No, the rent levels are very different. Tenant demo/preference is also different", "replies": [], "depth": 1}, {"id": "gyz0bl6", "text": "With an apartment complex that size you'll be able to provide some top notch amenities. That's what's going to differentiate it the most.\n\nIf your rates are below the SF4R you'll be fine. Look at what the PSF rates are. Figure out what your costs are and where your rental numbers need to come in at.\n\nYou could get a consultant to do a market study for you as well. Investors may want to see that sort of thing considering the size of the build you're proposing.", "replies": [], "depth": 1}, {"id": "gyz258o", "text": "No, SFH have different Tenants versus apartment Tenants.\n\nSFH: Typically, couples or family with kids/dogs.  Want/need more space and/or privacy.  Requires more maintenance.  Cost more in rent and utilities.  No amenities.\n\nApartment: Typically, single or couples. No kids.  Maybe pets.  Don't need a lot of space or any storage.  No maintenance.  Cost is less but no privacy and normally louder living quarters.  May have amenities such as a gym or pool.", "replies": [{"id": "gz0o0mx", "text": "You forgot apartments is typically lower income people.", "replies": [{"id": "h4evpwa", "text": "Maybe in the 1980\u2019s. Not in 2021. Most apartments Im involved near Boston with (or that are being developed around me) start at $3k/month for small 1-2br and go up to  to $5,000-$6,000+ for 2BR+. \n\nMany folks, especially 20-30 somethings who have high incomes don\u2019t want a condo if they will be moving in 1-3 years.", "replies": [{"id": "h4exkgr", "text": "Your area is the exception and not the average.\n\n90% of the time apartment rents to lower income people since higher income folk would rather purchase than rent. By most i mean more than 51%. \n\nEven in that area if rents are 3k then homes are most likely a million so even then lower income will rent instead of buying.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gyz2t96", "text": "BFR is definitely a different kind of living. Typically more sticky renters / less turnover. I personally haven't done any but have clients that are looking at deals. BFR is the new hot word for sure with everyone throwing money at it.\n\nI was just with one of the largest multi owners in the country, and they aren't doing any BFR. Main reason is they think they sites aren't very well located. You need a lot of land to build 350 townhomes vs 350 garden-style units. Developers are stretching on locations in order to find enough land to make a project work. For any good site, you're competing against traditional multifamily developers and / or home builders. Plus, they feel the tenant base isn't as good as traditional multifamily (meaning, it's people who want to live in a home but can't afford it / have bad credit).", "replies": [], "depth": 1}, {"id": "gyz3njb", "text": "SFH and attached multi-family have totally different cost basises.", "replies": [], "depth": 1}, {"id": "gyz7ai1", "text": "Typically not detached-single family because they don't usually share the same location as apartment buildings.\n\nHowever, there are a lot of people who are in the market to rent attached-single family will also consider multi-family apartment buildings.\n\nI wouldn't say they are direct competitors to each other but there is some overlap.", "replies": [], "depth": 1}, {"id": "gyzcugu", "text": "Nah it\u2019s nice diversification", "replies": [], "depth": 1}, {"id": "gyzfm84", "text": "SFR will bring in higher rent than an apartment building, even if the apartment building has nice amenities. The SFR is geared towards people who enjoy their freedom, like more privacy and don't want to hear neighbors above, below or on the side of them and are looking for more long term living. The apartment building is for those with a shorter window (how long they plan to stay) , convenience and in some cases; less responsibility.", "replies": [], "depth": 1}, {"id": "gyzme31", "text": "Different markets .  we look at sfh rents for the max apartment rents sometimes.", "replies": [], "depth": 1}, {"id": "gz06rw1", "text": "Different renters. On the flip side, your biggest competition for keeping residents though is usually home purchases", "replies": [], "depth": 1}, {"id": "gz0g159", "text": "Short answer is yes.", "replies": [], "depth": 1}, {"id": "gz0qbhj", "text": "What caliber of apartments? Unit sizes?\n\nIf you\u2019re planning large floor plans and similar quality finishes to the SF BFR then it\u2019s more of a concern than if you\u2019re putting up new luxury apartments in a gentrifying neighborhood.\n\nTypically apartments are a different demographic but it is definitely still ancillary competition if the rents are in a similar price range.", "replies": [{"id": "gz0yizb", "text": "Class A luxury. I don\u2019t have to go as luxury and honestly the market might absorb B+ just as well", "replies": [{"id": "gzgdata", "text": "There is some overlap if your unit mix is more 2 and 3 bedroom apartments. These class A tenants with good income and good credit are the ones you typically lose to home purchases. With home prices spiking these tenants might debate about leaving for a single family home rental to have a backyard for kids, no shared wall with noisy neighbors, and have less pet restrictions. You might be able to keep some of these tenants with nice amenities such as a pool, gym, and other amenities they would lose going to a rental house.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gz0udl8", "text": "I was head of acquisitions for a national single family rental REIT and they are very different", "replies": [{"id": "gz4nq2x", "text": "How much more is this trend going to grow?\n\nBesides industrial, it seems that it is the most trendy topic for new folks in CRE.\n\n&amp;#x200B;\n\nCurious to hear what you think about SFR longterm, since you probably know.", "replies": [{"id": "gzggh7e", "text": "I worked in land acquisition and apartment development. I see BFR and single family rental being a niche market product. Large portfolios of SFR became established in 2009 when banks were dumping tons of non-performing home loans to hedge funds. 2020 most of the newly non performing loans due to Covid were given forbearance or modifications so there hasn't been the same opportunity for buying portfolios of cheap rental houses. \nThe BFR is difficult because the land and lumber cost for BFR home vs apartment is significantly higher and the rent difference often doesn't compensate for that cost difference. With land and construction costs rising faster than rent the better return on capital is with lower cost apartments. The one caveat being BFR builders employing a strategy of renting and gradually selling off the individual houses to capture some home value appreciation. I saw the opposite of this happen in 2013-2017 where some Condo developers chose to rent the building as apartments instead of sell each condo because it was a better return on investment. Many SFR portfolios established in 2009 have been employing this strategy of selling off houses and reducing their portfolio.", "replies": [{"id": "gzhg64s", "text": "Couldn't get that from wikipedia, thanks! Lots of insight.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]