When searching for investment property in Richmond, VA, you need to keep several things in mind. If you are considering entering the market for an investment property or are thinking of expanding a small portfolio, then the following article will be helpful.
Investment property can take on many forms. Generally speaking, any property purchased to bring its owner some type of return is considered ‘investment property.’ While a single family home may bring a return to its owner, it is not considered ‘investment property’ as it is used as a primary residence.
The investment return an owner should expect should either come from recurring income from lease payments or from the terminal sale (or both). If a property offers a recurring revenue stream, it is considered to be ‘income producing.’ Improved properties such as apartments, office, retail or industrial which are leased to tenants fall under the ‘income producing’ category while raw land or speculative ‘for sale’ properties offer value only when sold and thus are considered ‘non-income producing’ for obvious reasons.
Each type of investment property comes with differing characteristics and thus should appeal to different types of investors. Many times, neophyte investors do not understand the inherent characteristics of each and end up with a negative impression of investing in real estate, mostly due to a mismatched asset whose investment profile did not fit with investor objectives.
Apartments as Investment Property
The explosion of apartments in the Richmond VA market has been largely unprecedented in Richmond’s history. The official Historic Designation of many Richmond neighborhoods has helped the older obsolete industrial properties become re-purposed as residential spaces via the use of Historic Tax Credits. It has helped to rebuild our Downtown.
Things to think about when investing in apartments:
- Apartments are management intensive and portfolios of single family homes are even more so
- Apartments are the easiest to finance and generall offer the best terms
- Apartments generally require the most maintenance
- Apartments generally carry the least risk as 50% or more vacancy is a low possibility in multi-tenant properties.
Overall, small apartment buildings are a great place to start, but can be hard to find. The duplexes and triplexes in the older neighborhoods are sought by many and thus the prices paid are many times at a premium.
Office as Investment Property
While apartments are currently very much in vogue as investment property in Richmond VA, the office market may become the next place where growth will occur. As the economic environment changed in 2007/8, the demand for office space fell along with it. Since the middle 2000’s, little office inventory has been added to our marketplace. As the market recovers, demand should increase.
Things to think about when investing in office properties:
- Banks love owner occupied properties
- Office properties tend to stay fully occupied AND vacant for longer stretches
- Office properties are relatively easy to manage
- Access and visibility are key components to property values
Retail as Investment Property
The retail segment was extremely hard hit during the recession. As most retail properties are larger in scale and are located along high visibility stretches, purchasing a retail property for investment purposes requires deeper pockets and greater exposure to the whim of the market.
Things to think about when investing in retail properties:
- Banks see little value in smaller ‘mom and pop’ tenants
- Large anchor tenants pay little for their space
- Long term leases for national tenants reduce management responsibilities
- Tenant build out can get very expensive
Industrial as Investment Property
As with retail, industrial properties have seen a decrease in demand as the nation’s economy suffered. This fact, combined with many technological advancements have decreased the need for companies to store as many goods as in prior decades. That fact aside, an incredibly high percentage of our city’s stock of older (historic) warehouse property has been converted to new uses and has drastically lowered the available stock.
- Industrial property needs to be well located near air, rail, interstate or water
- It is the least expensive to purchase (and lease) per square foot
Land as Investment Property
Land investing is hard for newer investors and not really a first step for someone looking to enter the investment property arena. While the old adage about land is true…’they are not making any more of it’…it does not mean that land is a great investment.
Things to think about when investing in land:
- Land is illiquid
- Owning raw land is typically income NEGATIVE as real estate taxes are due
- The time horizon for land value increases can be decades
- Comprehensive Plans by counties and cities can radically affect a tract’s value
Overall, investing in real property has created generation wealth for many and the best time to have purchased property was always ‘yesterday’ with the next best time being ‘today.’ Over time, even with the recent 30% adjustment in values from 2008-2012, the shrewd investors are still well ahead and found the recent past an excellent time to acquire more.
The leverage offered by investment property is unequaled in the stock or bond market and can offer smaller investors great opportunities to grow a small portfolio into a large one in relatively short order. With proper management and banking relationships, the risk in owning can be largely mitigated and a substantial income stream can be created.
Author – Rick Jarvis is one of the founding partners of the One South Realty Group and specializes in the condominium market and adaptive re-use properties in the Metro. Having represented numerous projects in many neighborhoods throughout the Metro, developers consider One South as the premier mixed-use urban brokerage in Richmond.