Establishing Your Niche and
Locating Properties
Success is not measured by what a man accomplishes, but by the opposition
he has encountered and the courage with which he has maintained
the struggle against overwhelming odds.
—CHARLES LINDBERGH
T
he preceding chapter discusses the
merits of the value play. This chapter examines some important concepts to
consider prior to the deployment of your acquisition campaign. You must
first determine your niche in the marketplace by analyzing key factors
regarding the type of property you are seeking. Once you have defined
exactly what type of property you are looking for, you will be ready to
embark on locating the property best suited to your needs.
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CHAPTER 5
Establishing Your Niche
Before you begin your search for an apartment complex, you must first
define your niche in the marketplace. There are four crucial factors to con-
sider:
1. The resources available to work with.
2. The size of the property.
3. The age of the property.
4. Your holding period.
It goes without saying that there is some crossover among these factors. For
instance, the more capital you have to work with, the larger and more
expensive a property you can acquire. One is not necessarily a function of
the other, though. Just because you have a large pool of capital to draw from
does not mean that you have to buy a larger property. Let us examine each
factor in more detail.
Availability of Resources

your confidence. This self-assurance will manifest itself through your ability
to graduate to larger and larger multifamily properties.
Midsized apartments typically range in size from 50 to 150 units. As you
move up the scale in size and magnitude of the properties in your portfolio,
you will most assuredly want to employ full-time managers and mainte-
nance personnel. Furthermore, unless you plan to keep up with all of the
accounting functions, such as the accounts receivables, payables, and col-
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Establishing Your Niche and Locating Properties
lections, you should seriously consider engaging a reputable property man-
agement firm. An effective management company will handle all of the day-
to-day operations such as managing the staff, collecting the rents, and
paying all of the bills. It will also generate month-end financial reports from
its accounting programs, which will provide you with all of the details of rev-
enue and expenses. Depending on the size of the company, management
firms generally use field supervisors, adding a level of supervision that
would not otherwise exist. These supervisors will usually oversee and be
responsible for 5 to 10 different apartment complexes. If your on-site man-
ager runs into a problem outside of the normal day-to-day operations, he or
she can call the field supervisor for help. A competent supervisor should be
able to resolve most issues.
Larger multifamily complexes are typically those with 150 units or more.
Larger properties allow the owner to achieve a higher degree of efficiency
through economies of scale. Depending on the size, instead of having one
all-purpose maintenance person, you would be able to hire one maintenance
person who is also qualified in air-conditioning and another who has
plumbing skills, in addition to a groundskeeper and perhaps a porter.
Employing individuals with these types of skill sets can be a very effective
cost-savings measure because you do not have to call in an outside contrac-
tor every time an air-conditioning unit goes out, for example. With mainte-

course, suggesting that you remove yourself completely from the process.
Your role is to manage the managers by defining your objectives for the
property. You provide the leadership, and then get out of the way and let
them do their jobs. Do not micromanage. You will continue to maintain
close contact and make yourself available for questions. In addition, you will
scrutinize every detail of the financial reports every month to ensure that
you are on track to meet your stated objectives.
In summary, whether you own a small, midsized, or large apartment com-
plex, you must decide as the owner what the best use of your time will be
and how you personally can add the most value to maximize the return on
your investment.
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Establishing Your Niche and Locating Properties
Property Age
Depending on their age and physical condition, apartment complexes are
commonly classified as A, B, C, or D properties. As a general rule, the newer
a property is, the more expensive it will be on a per-unit basis. You might
pay, for example, as much as $75,000 to $100,000 per unit for a newly con-
structed building, or you might pay as little as $5,000 per unit for a much
older building.
Class A apartments will typically be newer properties, less than 10 years old
and in excellent condition. They may even be newly constructed buildings
that are still being leased up. This type of apartment will command the high-
est price per unit for several reasons, one of which is the cost of new con-
struction, building materials, and labor. Due to an inflation-driven economy
(even at 3 to 4 percent per annum), it is a simple fact of life that it costs
more to build today than it did a year ago, 5 years ago, or 10 years ago.
Before developers and builders begin a project, they will perform a feasibil-
ity study to determine whether the project makes sense. They will estimate
all of the costs that go into the project, examine the potential market rents,

and fast. Many, many bank loans went bad as investors walked away from
their properties.
In summary, for the value-play investor, Class A apartments offer the least
upside potential because there is no additional value to create. The proper-
ties are newer, the utilities are already submetered, and they offer many
amenities to their tenants. Furthermore, not only is there no additional value
to create, but investors will often pay a premium for these higher-quality
assets.
Class B apartments are slightly older than Class A buildings, usually between
10 and 20 years old, and are still in relatively good condition. Class B prop-
erties will generally range from $25,000 to $75,000 per unit, depending on
the market. These properties are often located in solid middle-income areas
and are likely to be the most stable among the various property classes. This
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Establishing Your Niche and Locating Properties
is due to the fact that the surrounding neighborhoods are well established
and are in relatively good condition, with little or no deterioration. The
apartments are still new enough to offer many attractive amenities, and old
enough to be affordable for many families. As air-conditioning units and
other equipment begins to fail, Class B properties will experience higher
maintenance costs than the newer Class A apartments.
Opportunities to create value acquiring Class B apartments are available to
the patient investor who takes the necessary time to conduct a diligent
search. They are not as readily available as Class C apartments, however.
The example cited in Chapter 4, the 22-unit building, was a solid B property
that had not been kept up. As previously mentioned, most of the deteriora-
tion was aesthetic and was therefore not that costly to bring back into good
condition.
Class C apartments are those that range in age from 20 to 30 years and in
price from $10,000 to $30,000 per unit, depending on the relative market