Overall, we’ve seen the rental rates in Olde Town (Downtown Augusta’s primary residential neighborhood) climb from an average of $.67/SF to just under a dollar per SF over the past four years. That’s a 32% increase, about 8% per year. What’s going on?
Well, as we’ve already mentioned, Cyber and Medical young professionals are choosing to live downtown. That’s driving up rents and housing prices. Also, investors are renovating properties, and so we are seeing more available rental properties that are in in decent condition.
A decent case study is 107/105 Fourth Street. We recently helped a buyer from Virginia acquire those apartments. The previous owner had owned them for over 15 years, and they were in pretty rough condition with low rents. The new owner is going to make an investment into renovating the units, and with the help of professional property management, they will lease them at market rates. The location of the property is great–the condition was terrible. Now that complex (surrounded by young, professional homeowners) will probably target young professional or medical tenants, and we’ll see it on our rent study next year, my guess is on the higher end of our graphs.
You’ll also see in the graph a strong correlation between the “Score” and the price per foot. Our scoring system is a somewhat arbitrary numbering of properties by both location and condition from 1 to 5, and then averaging these two numbers together. Thus, a property with location of 4 and condition of 5 scores a 4.5 in this measure. The number again is somewhat arbitrary, but the correlation is quite strong. So I would assign a property in rough condition and poor location an estimated rental rate of .65/ft, while a property with a good location and great condition an estimated rental rate of .95/ft. Note that this measure doesn’t take into consideration size, which the first graph makes clear is highly correlated with the rental rate.
I think this is great news for our Downtown rental market. Augusta is changing, and I believe that the rising tide will lift all ships.
What are your thoughts? What has your experience been in the rental market?
Are you considering making an investment in a rental property? Here are a few considerations to help you, whether you’re thinking of buying a Duplex, Triplex, Quad, or even something much larger as your first investment.
Get good legal advice
I can’t stress enough how important it is to find an attorney that you trust who has experience dealing with commercial real estate to advise you in legal matters related to your investments. Your attorney will advise you with questions relating to incorporation, review of purchase and sale agreements, they will close your transactions, and advise you if a lawsuit or issue arises with your rental properties.
Hire a broker to help you evaluate your options
For your first transaction, it is a good idea to find a broker you trust to help you find deals and run numbers for you. This is especially important in markets such as Augusta, where duplex deals don’t last very long on the market or trade off-market. Also, it’s important to have someone who can help you navigate the underwriting process.
Hire a professional property manager
It is definitely a good idea to hire a professional property manager to handle your first deal. This also means that likely you will need to add an additional expense to your budget that the seller didn’t have if the property wasn’t professionally managed. It is always a good idea to interview a few managers, and have a good understanding of how their fees work.
Solid marketing and promotion to lease up your units
Professional pictures, a floorplan, even a 3-d tour—these are things that help listings to stand out and move quickly. Ask your property manager about them, and you may even need to help them put the marketing package together. Look at your competition—what are other apartments doing to attract tenants?
If you’re looking to make an investment, what are questions that you have? If you’re a seasoned investor, what are things you wish someone had told you?