APARTMENTS AS INVESTMENT PERSEVERANCE, DURABILITY MAKES SHELTER ERIC DOMEIER
be avoided if at all possible unless under the direst of circumstances.
With the project built and units occupied, the slow work of equity building begins. Apartment rates around the
county average between $1.61 and $1.93 per square foot, based on SDCAA 2012 Fall Survey of Vacancy and
Rental Rates. Higher rates are paid in the coastal and downtown communities.
The SDCAA survey also illuminates important data about occupancy trends. Currently, vacancy rates average
4.5% county-wide. Studios and 1– and 2-bedroom units are all around 4.3% vacancy, while 3-bedrooms are at
7.3%. A prudent apartment complex will have a mix of apartment types to accommodate the breadth of the
market. Each submarket has unique vacancy rates and should be researched for specific projects.
Good maintenance is absolutely necessary to preserve the investment of an apartment building. A deferred
maintenance allowance will provide a cash reserve for future needs. Monthly maintenance includes landscaping
and cleaning of common areas. Bi-annual maintenance will include exterior painting and sealant repairs. A
typical 5-year maintenance program will include moderate roof work, door adjustments, equipment inspection
and duct cleaning. The 10-year program will include concrete flatwork replacement, paving and waterproofing
repairs at exterior decks and door weather-stripping replacement. Avoid building with any horizontal weatherexposed wood surfaces as these will deteriorate rapidly.
Returns on investment do not come readily through rental revenue alone. The exemplar project illustrated in the
tables show a month-to-month cash-flow loss for the first 15-years. But with the IRS property depreciation tax
credit, the project can quickly move into the black. Preliminary analysis shown in Table 1 illustrates the project
breaking even in year-one with increasing revenue thereafter. The more substantial return on this investment
occurs through real estate appreciation.